2017 was an awesome year to be an investor. Your returns were stable and guaranteed no matter what broad based index you invested in. Not only that but your rate of return was two or three times historical averages. As mentioned, the cherry on top was that volatility was non existent. The markets just kept going up, never taking a break from its climb higher. Then came 2018 and the inevitable questions of sustainability. The markets can’t possibly keep this up forever could they?
Global market returns in January were the second best on record. The good times continued to roll with no end in sight. The answer to the questions I posed above seemed to be yes, the markets could go up forever. Then came February and a good dose of reality for anyone who invests in, well, anything really. Lets use the S&P 500 as an example. By the end of January the index was up over 5%, an amazing one month return. Now, after a third the way through February the index is down about 2% for the year. A big change in a very short period of time. The markets giveth and they taketh away.
It wasn’t just US stocks that got hammered this past week. Stocks all over the world got hit hard as well as bonds, oil and several currencies saw significant declines. Oil for example hit a two year low after rising significantly in 2017. Even gold hasn’t had a very good year but it has at least gone up. So what is one to do in a market where everything is falling? Simple, nothing. At least that is what I’m doing.
Investing is about the long term, it isn’t about the next week, month or even decade. Investing is a lifetime game that will last forty, fifty, sixty or more years. What happens over a week, month or even a decade doesn’t really matter to me. It is simply background noise and a temporary sale. Whatever automatic investments I have setup will get more shares for each of my bucks.
The worst thing you can do in a market like this is panic. Investing can be a cruel mistress at times but you have block it out. Create an investing game plan that your comfortable with and stick to it through thick and thin. This is the prevailing advice of every great and successful investor but it can be hard to do. Fear is only natural but investing based off your fears is always a recipe for a disaster.
If you’ve taken the time to access where your at in life, then you came up with a suitable game plan based off where your at, then why abandon it after a bad week? Making hasty decisions when the markets are behaving, well, like the markets will almost always turn out poorly. Sticking to a well thought out, long term investment strategy will work. It might not appear successful in the short term but that is why investing is called a long term game.