As I write this, the stock market is falling. It’s down about 7.5% from the all time high set in early January. This drops the prices all the way down to where we were in October of 2021, about three months ago. And our the trailing 12 month return is currently “only” at +17%. In short, this is no economic crisis. It’s barely a pebble on the road.
That said, I’m starting to hear the buzz of worried young investors. Questions like:
• “Should I still be investing with the market down?!”
• “Should I be saving my cash until the market is back up?”
• “Should I wait for the bottom to invest my money?”
And my answer of course is, “NOOO! GOD! NO GOD PLEASE NO! NO! NO! NOOOOOO!” (feel free to read that as Michael Scott).
Investing is funny because every human instinct we have about it is wrong. We’ve evolved to run at the first sign of danger. That may serve us well in the wilderness where a twig snapping could mean a predator looming. But with investing we should do the opposite. The prices dropping should never be a signal to run.
Remember when the market hit an all time high in February of 2020? We then saw the market drop by 7.5%. If you sold at that point, you would have missed out on a 42% gain from then until now. It turns out in March 2020, the market didn’t stop after the 7.5%, it kept falling to about a 30% drop. The lower you sold, the worse you would do.
Is the market going to keep dropping this time? I have no idea. If I could tell you when these corrections and rebounds were going to happen, I could trade on that information, and I would be richer than Jeff Bezos in about six months. Anyone who is not richer than Jeff Bezos but does tell what the market will do is full of shit.
So no. Don’t sell. Don’t wait. Don’t hold back cash. Don’t change anything. Keep investing early and often. In a few decades you’ll be fabulously wealth and won’t even remember this drop.
As always, reminding you to build wealth by following the two PFC rules: 1.) Live below your means and 2.) Invest early and often.