When the Stock Market Dips, Who Should Be Nervous? (Financial)
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(Lifeguard Wealth, August 2015)
I’ll answer the above question right away so you don’t have to bite your fingernails all the way through this post. The only people who should be nervous are those who (A) don’t know much about the stock market, and (B) don’t work with anyone who understands it better than they do.
You may have read that U.S. stocks recently had the biggest one-week dip in almost four years. That may seem like cause for concern at first glance, but those of us who work in wealth management are more apt to shrug our shoulders than bite our fingernails.
Why? Because, as we consistently remind our clients, sound investments are those that minimize risk and maximize return over the long term. It’s when novice investors strike out without this basic principle in mind that the August dip appears to be a crisis rather than a relatively minor bump in the road.
Financial Wisdom Fact of the Day: Fear is a short-term phenomenon; confidence is long-term.
There are a host of factors that caused the August dip, according to financial analysts. ABC News summed them up nicely: a slow-down in Chinese manufacturing, the inflexibility of the FED’s sustained 0% interest rate, continued uncertainty in the Greek economy, devaluation of currency in China and Kazakhstan, and lows in U.S. crude oil.
Though none of these factors is a surprise to investment professionals – all have been reported regularly in the news – when market reports reveal short-term changes, those who were depending upon short-term rewards react. Fear happens fast, and it’s not a sustainable emotion. To deal with it, novice investors will either raise the stakes on another risky portfolio or cut their losses and walk out with whatever cash they have left. That’s one way to live.
There is another option in response to fear. We can remember that financial markets level out and thrive because of the confidence they have earned from performance over decades. Financial advisors understand that when the headline reads “Worst Day in 4 Years”, investors can take solace in the confidence inspired by a review of long-term portfolio health.
Investing should never feel like rolling dice in the casino. If you have questions or concerns about recent financial news and would like to better understand how active financial management can protect your wealth over the long term, feel free to contact us. Taking the fear out of financial planning is our passion, one relationship at a time.