I must admit that when I received my personal "Weekly Investment Summary" this morning, it was a bit shocking to see such a decline over the past 7 days. I obviously knew it had been a really bad week and even wrote about the losses within the major market indexes in a blog this morning (see "Shorter Term Indicator Goes Negative"). But seeing those losses in dollar terms can be down right scary.
So what do you do when you know that emotions are the enemy of investment returns and yet you still need help fighting off the fear? Here is a five point game plan I've developed over the years. Adopt it and I'll promise you'll sleep better tonight.
- Understand what's going on. You need to know whether it is just your investments that have declined in value or the entire market that took a hit. If it's the former, get into the numbers and find out if the story has changed on your investment. This past week, I can promise you that it was the entire market that took a hit as all 3 major indexes suffered there worst losses in over two years.
- Recognize that short term losses are common and we rarely have a year that doesn't scare us at some point. I use the fantastic chart below from JPMorgan to remind myself that we've been through this before. In fact, since 1980 the market has averaged a intra-year drop of 13.8% and still finished the year positive 29 of those 38 years.
- Remember where we came from. I know that this has been a rough quarter in the markets but as of this writing, we're at about the same place we were in November, 2017. Think about that.
- Run your game plan. At Monon Wealth Management we work from a written investment plan that accounts for almost every market circumstance. With help from many outside experts, we wrote these plans while things were calm and our emotions were at bay. Now all we have to do is have the courage to execute.
- Talk with an expert. I study the markets like a hawk and yet, I still don't go it alone. I pay for access to those that I view as more knowledgeable, more experienced and/or view the world differently than I in order to "check my facts." Every decline, I learn something new and come out the other side a better investor.
I hope going through this 5 part exercise helps calm your fear and allows you to sleep better. If not, you can always use me as your expert and allow me to carry you through this one.