What does my investment plan look like right now?
I explain, in the excerpt below, a bit about my own financial plan and how I'm thinking about my own investments, time horizon, and future. Well, I'm writing this on March 21st, as the stock market has gotten relentlessly pounded for two weeks straight. It's brutal. Have I changed my tune from what you're about to read? Not even a little. Over the past two weeks, I've added MORE money into all of my investment accounts because I see this as an opportunity...great companies are on sale! Compared to 3 months ago- because the market is down so much- I'm able to buy more shares with the exact same dollar amount! So, (as long as I have the cash flow and don't need the money in the near term) Sign me up! Here's why time is on my side... - GD
This is an excerpt from How To Avoid HENRY Syndrome: Financial Strategies To Own Your Future:
I’m twenty-eight years old. I save money every month into my backdoor Roth IRA, SEP IRA, brokerage investment portfolios, and permanent insurance policy. The money I’m saving into these long-term vehicles is meant to remain invested for 10-15+ years. It’s money that’s intended to replace my income in retirement, pay my future kids’ college education, or buy a vacation home… but it’s not the money I need for my cash flow in the near future.
This is why I don’t care about the next six months of market volatility: I know that I have time to wait for any potential short-term loss I suffer to rebound!
Based on all available history (which is the only thing we can go on), these market declines are temporary but the gains I will achieve by outlasting them are permanent.
Here’s what those temporary declines and the following recoveries over time have looked like when sketched out*:
As the visual makes obvious, the stock market recoveries are longer, more powerful, and ultimately overwhelm any of the losses that precipitated them and as a result the stock market has kept climbing despite them.
I look at that picture and think, “Cool, two steps back, ten steps forward…on repeat. Sign me up!” Here’s the beautiful part: because we know, this decline is temporary, and we know further that the money we have invested is not intended for the near future, we’re not going to freak out and make panicked decisions when doing so would mean missing out on all that long-term upside. For good measure, let’s take one more look at that “long term upside.”
Here’s another way to think about it: markets fluctuate but do not create loss!
People create loss by mistaking a temporary loss for permanent decline and trying to guess when to sell right before the market rebounds, as it always does. As long as we stay the course, understanding that we have a long-term focus with these particular assets, investing aggressively (owning stocks) will help us on our quest to achieve long-term financial success.
Want to learn more? Read "How To Avoid HENRY SyndromE"
*History of U.S. Bear & Bull Markets Since 1926, and was sourced in an article by Bob Johnson titled, “How Long Can the Bull Continue to Run.”
**Source: © 2014 Morningstar, Inc. All Rights Reserved. Reproduced with permission.