Losses and significant drops in the stock market can create emotion. You wonder...... is there something that I should be doing? Is this 2008 all over again? Do I listen to the financial media and be glad of these initial declines because it creates a buying opportunity? Let the confusion begin....
How about some perspective?
Correction vs. Bear Markets
A correction is a decline in a bull market of -10 to -20% and is a regular occurrence. If this is all that this turns out to be, then everyone should be okay. A bear market decline that exceeds -20% and beyond is a different story. It is way too early to determine what we are dealing with right now. However, be advised the indicators are all flashing red right now. A return to a bear market is inevitable because markets naturally cycle. It is the timing we don't know.
Dramatic Gains produce Dramatic Losses
I believe that this was the worst two-day sell-off in 4 years. The market went up fast and had significant increases. The sooner they go up, the harder they fall. Unfortunately, that is what we are dealing with right now.
Is this a buying opportunity?
Warren Buffett commented that you want to see losses because it creates buying opportunities. He says this as if the potential of a bear market is zero. I wouldn't want to be a buyer of stocks after taking a -50% loss unless I was buying those stocks with the money I had in cash. You can't count out a bear market or pretend that they don't exist.
Is it okay because I am a long-term investor?
Warren Buffett also commented that he was a long-term investor of 30 - 40 years - SAYS THE MAN WHO DOESN'T AND WILL NEVER NEED THE MONEY. It is easy to sit back and take losses when you don't need the money. However, if you are within 5 to 10 years of needing it or you don't feel like taking dramatic losses, it makes no difference if you are a long-term investor or not. It would be best if you had a Plan B because Plan A (the market going up) ceased to work. Once again, see point 1! It is to tell what we are dealing with early.
Right now, the key is determining how much risk you are willing to take at this stage in an aging bull market with the potential of a widespread breakout of a deadly virus with the backdrop of an election cycle. If you want an opinion on the risk that you are taking, all you have to do is go to the Ask Bob section, and we can have a conversation. There is never a cost for an opinion. We also offer a step further than that with a no-cost (or strings attached) phonecall or meeting. In that meeting or phone call, we assess where you are and where you want to be. We look at risk as well.
Just email my assistant, Heather at Heather@prudentmoney.com. Also, keep listening to the radio show where we are covering this closely!