Don’t Fear the Dip

(Disclaimer I am not properly licensed to dole out advice on securities. Speak to an experienced Financial Adviser before making any important financial decisions.)

People seem to have a general stigma when it comes to the market, often equating it with the roll of the dice while on your knees praying for a seven. Most hardworking people aren’t so quick to leave their life savings to chance and risk throwing away what they’ve worked so hard for their whole life. Horror stories about people losing everything in 2008 definitely don’t help the negative biases the average person has against the stock market. Thankfully investing isn’t left in the hands of fate, and people with a properly designed long term plan generally don’t lose money.

While markets are volatile over the short term, we can generally predict long term growth.

2000-2012 market
As you can see the market took a sharp decline in 2008 thanks to the mortgage crisis. However people that stayed in the market made their money back in just a few years, while those that panicked and cut their losses went home empty handed. Moral of the story You don’t want to be the guy buying stocks in 2006 only to sell in 2008.

Nearly all Financial Advisers will repeat the mantra “Buy low, Sell High” which of course is the foundation of all profitable trade. But by falling prey to fear and pulling out after the dip you are effectively doing the opposite, “Buying High, and Selling Low”

Of course we can’t predict the market, so how do you really know when to buy, and when to sell? Well we don’t. We aren’t talking about day trading. Instead you want to be continuously investing on a schedule. For example: Every month put $250 into an S&P 500 Index fund. If the market is up you put money in. If the market is down YOU PUT MONEY IN! By taking advantage of Dollar Cost Averaging and regularly contributing in the long run you should on average come out ahead. This is why the 401k is so powerful. By regularly contributing you your 401k with each weekly paycheck you are unknowingly taking advantage of dollar cost averaging. Furthermore because most investors are ignorant as to what is going on in their 401k they don’t call their Financial Planner every 5 years to be talked off of a ledge.  The reason 401ks work is precisely because it forces the investor to take advantage of a proper long term plan whether they know it or not.

In addition, not only is investing fairly low risk in the long term, but you can’t afford not to be investing your money. Thanks to inflation that money you may have sitting in your bank account, or CD is losing value every year. Your retirement plan is effectively moving backwards, and in the long term cuts it nearly in half.

In conclusion by having your portfolio properly diversified and invested according to your risk tolerance with long term goals in mind you should come out just fine. So throw that rabbits foot away and put the dice back into your pocket.

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