When markets are plunging and all the news is bad, it’s difficult to stay focused on your current action plan.
Even though the gurus, analysts, pundits, money bloggers, newsletter writers and journalists are bombarding the internet, radio, TV and every other media source with news of the next collapse, you can get through it if you boldly follow these six rules.
- Maintain a rational amount of liquid savings for unexpected emergencies. The kitchen appliance that fails, the sudden dental procedure or the broken-down car that must be dealt with can all be handled without cashing in a portfolio—or heaven-forbid—your 401(k) plan. Take a measure of your insurance policies (medical, auto, homeowners or renters, disability, etc.) and total the deductibles and co-insurance liability. If you work in an industry with less job security than you would like, consider how much money you’d need to stay afloat until you land a new position—days, weeks or months. Be conservative and make sure your savings will get you through that transition.
- When it comes to your investments, be sensible. If you are investing money you need in the next five years or so—say for a down payment on a house, or to pay for a wedding or a car—you simply cannot put that money in stocks, no matter how “blue chip” they are. The risk far outweighs the potential gains. If it makes you miserable to see that money earning near zero, think about how you’d feel if the money you were counting on is reduced by a big number in a down year. Or two or three. Yes, you will forgo the upside, but the volatility that exists in the global market place is just too big to be considered sensible.
- Stop checking your accounts frequently. If you’re invested sensibly for the long term—think asset class investing or indexing—why bother? If you’re in your 30’s or 40’s and you’re checking your retirement account, you’ll either feel good or bad. But either emotion is wasted since the value on your statement is completely irrelevant to your long-term expected outcome. The same holds true—regardless of your age—if you expect to extract money in retirement as a stream of payments over time vs a lump sum.
- Take stock of what you’re doing right. If you are working from a well-conceived financial plan, than you should feel pretty darn good that you’re following a path that considers your goals, risk tolerance, time horizon and—most especially—your values. That is something to celebrate in a big way! It’s like the syllabus your teacher handed out on the first day of class. It described what the class was going to cover, what materials you needed, the action steps required and the outcomes. The only difference in a properly built financial plan is that you are the creator in concert with your planner.
- Feel good about your success. When you’re on a path that aligns with what is most important to you and your family, it’s empowering. You’re providing comfort and richness—you haven’t left what’s really important to chance. And it’s vital to feel that richness in your life
- Keep at it. Life has a way of bringing events and situations that necessitate adjustment and resilience: a new baby, a lost job, a bonus, an illness, a new spouse or an untimely death or divorce. You’ll want to continue to amend and update your plan to reflect your situation, experience and beliefs.
When the markets are swinging wildly and you’re bombarded with words like “recession”, “plunges”, “turmoil” and “free-fall” just know that there is nothing you can do about it. AND, any action you take in terms of your investment portfolio is probably wrong.
If you have a plan in place that includes an appropriate liquid side fund, you can ignore the babble and live your life, celebrating your unwillingness to buy into the hysteria. Knowing that you can get through temporary market turmoil will enhance your ability to feel rich indeed.