It’s an ugly day on the U.S. stock market today. Again. And there can be a temptation to want to call your broker up and say, “Put it all in cash. Get me out of this mess.” But unless you need that money in the short-term (in which case you were gambling anyway), you shouldn’t do that.
Let me give you an analogy. I used to fly a lot for work. Sometimes I’d be on a flight and we’d get a lot of turbulence. To the point where you’d wonder, “Is this it? Are we going down?”
But I didn’t panic in those moments. Because I would ask myself: “Do I really think this plane is going to crash? Am I about to plummet into the earth from 30,000 feet and go up in a ball of flame?”
There was only one time in all those many times I flew where my answer was, “Maybe?” The rest of the time my answer was, “No. I think it’s going to be rough and I’ll keep an eye on the overhead bins and hope that big guy stays in his seat, but I’m going to survive this just fine.”
That one time I thought “maybe” I asked myself what freaking out would do for me. Would my screaming or hyperventilating or repeating “we’re going to die, we’re going to die, we’re going to die” change that outcome?
My answer was “No”. If we were going down, nothing I could do at that point was going to change it.
So I forced myself to take a couple of deep breaths (yoga breathing is good for this) and I gritted it out and we landed just fine.
That’s what most investors need to do with the markets right now. If you’re looking at your savings or your retirement fund and you’re thinking, “oh my god, I’m about to lose it all,” I want you to step back and ask yourself, “Do I believe the United States economy is going to fail? Do I believe that our currency is going to become worthless? Do I believe that five years from now we won’t exist as a thriving economy?”
I would hope for most of you that the answer would be No, the U.S. economy is not going to fail. The world economy is not going to fail.
Is the U.S. facing a recession? Yeah. Are some people going to go bankrupt as a result of this current situation? Yes. Will some companies go bankrupt as well? Yes. But the entire U.S. economy? I don’t think so.
Which means that if you sell now when the markets are down all you are doing is locking in your losses. You will guarantee that the bad outcome happens to you. It’s like jumping out of that plane that’s having some turbulence. It’s going to land fine (assuming your hasty opening of the emergency exit didn’t just kill everyone), but your jumping from the plane will have guaranteed the bad outcome happens to you.
Keep this in mind: For every single person who is selling right now, there is someone buying. (Now the reason we’re seeing such a drop is because the people willing to buy are only willing to buy at a lower price than they would’ve bought at a month or two ago. But still, the point remains. For every single person bailing out of the market, there is someone buying.)
The long-term trend of markets is to recover and move upward. So if you have ten years? Twenty? Thirty? Hold steady. Keep your investments.
If you’ve figured out that stock market investing isn’t for you because this raises your blood pressure and you can’t stop hitting refresh, that’s okay. But wait to get out of the markets. Let them recover some first. Don’t lock in your losses.
And if you think this is it? That the end of the U.S. economy has come, then ask yourself the next question. “What does selling now do for you?”
Because if you’re right, converting those holdings into cash that won’t have any value anyway isn’t going to help you. We’ll be back to “Hey, buddy, can I trade you this rabbit I just caught in my backyard for some of those carrots you grew?” at which point it all becomes moot.
So hold on. Hold the course. Don’t panic if you have the time to sit this one out.