Don't Fear Stock Market Selloffs
Don't Fear Stock Market Selloffs
Use them to your advantage
On Saturday morning one of the parents at my daughters basketball game approached me while they were warming up. As I was reading Barrons he said, “I just looked at my crypto and stocks, wow is it ever brutal. But my wife said, you know it will come back. You need to buy more.”
“Well you would be buying at a discount.” I said.
He replied, “I know. But it’s just so hard to do right now. Who knows how much lower it could go.”
His line of thinking runs through everyone’s mind when the stock market experiences selloffs or is in the midst of a bear market. Is it going to crash? Will it come back? Am I going to lose all my money?
These questions are inevitable and you hear it every time this happens. But to obtain high returns you have to be willing to accept the risk and volatility that comes with owning stocks and being invested in the stock market.
We have to remember that money invested in the stock market should not be needed for five or more years. If you’re worried about selloffs when they happen and it’s giving you anxiety you have too much exposure to the market.
The overall stock market is a slow steady grind higher with some turbulence along the way.
Take a look at the multiple pullbacks in the market since 2009. You almost want to root for these selloffs and buy on the pullbacks. It gives you the opportune moments to put money to work.
Now here is what the S&P 500 looks like since 1984. Where are all these “scary” pullback moments? Even the Covid crash in 2020 is hard to notice. But had you bought around that point you’ve seen over 100% gain. This S&P 500 chart illustrates what long term investing looks like.
It’s hard but when there are market selloffs or big pullbacks you should buy. Your automatic monthly contributions to your 401K or IRA is automatically doing that for you. It takes your fear and emotion out of it and buys every month for you.
Sell high, buy lower. It’s really not that hard. But you have to overcome the contrarian view of buying when things are down and people are selling. Think about this quote from Warren Buffet.
"I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful." — Warren Buffett
The market environment now has faster trading action with everyone having the information and ability to trade at their fingertips. We are going to continue to see these fast moves up and down. It used to be the market took the stairs on the way up and elevator on the way down. Now it’s the elevator up and elevator down. Sometimes that’s even in the same day like on Monday of this week.
Pullbacks need to be viewed like you’re going shopping and everything is on sale. When things are on sale it feels good buying things. My wife loves to tell me she got these new pair of shoes and that they were on sale. It’s exciting for her. Yet when the market is on sale people panic and fear sets in. Many will not buy anything because of fear. The next time the market drops look at it as your favorite pair of shoes you wanted are now on sale.
Don’t fear high volatility and selloffs. Use them to your advantage.
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