Watching the stock market over the past year and a half has been like riding one of those rickety wooden roller coasters: sometimes it's exhilarating, sometimes it's terrifying, and by the time it's over for the day you feel beaten to a pulp. The Dow plummets by hundreds of points and it's the end of the world as we know it. It jumps by a similar margin, like it did yesterday, and Jim Cramer actually ascends to heaven on a winged steed. All this proves is that, when it comes to investing, people are anything but rational.
Let me say right here that I'm not offering any kind of investment advice. Like many people, my stock holdings are limited to whatever the good people at my 401(k) broker are into this week. Do I know what those are? Hell no.
But that's just it: I don't want to know. Nothing could be more detrimental to the long-term health of my retirement savings than following the day-to-day swings of the stock market. It's funny, everyone knows to buy low and sell high, yet when the market is at 50% of its all-time peak, that's when the most people lose faith in investing! Is that exactly backwards, or what? If you knew to get out at 14,000, then, fine, you're a genius.
We're obviously on a downward swing of monumental proportions, but if you look at the entire life cycle of the Dow Jones Industrial Average, you see a fairly steady march upward since the depths of the Great Depression. Even with the current dip, the historical trend line is unmistakable. Personally, I see no reason to expect anything else over the next 20, 30, or 40 years.
Like Ron Popeil with his Showtime Rotisserie Oven, my approach to investing is to set it and forget it. Contribute on a regular schedule, knowing that what matters isn't the value of your holdings tomorrow, but decades from now. There comes a point in any economic contraction where people are acting and reacting purely out of fear and anxiety, instead of the facts on the ground (just as they're overcome by optimism when a bubble forms). And that's the point at which they are begging you to take their undervalued stocks off their hands. Later, when the economy is jumping, they'll be the ones lining up to overpay you for the same shares.
We human beings are terrible short-term thinkers. We tend to expect whatever is happening right this second to continue indefinitely. That's what causes people to pull their money out of the market just when shares are the cheapest, or not to save money in the first place. Don't be that guy. Talk to your spouse and your personal financial advisor, read some books about investing, make a plan, and then stick to it.
Has recent market upheaval affected your investment strategies?