Vanguard Founder John Bogle said something on CNBC that I found interesting. At the time, it was 2008 and we were in the middle of a financial crisis. He said to ignore your monthly investment statements. He said don't pay any attention to them. It is just noise. I can't recall what he said exactly word for word. However, you get the idea.
So, if the market is going down, should you just ignore monthly investment statements and pretend the losses are not real? Just because you ignore them and they are just on paper (You don't need the money) does that make it ok?
Let me give you a good illustration. Let's say that you get a headache. It comes and goes. For most of us, that doesn't require a trip to the doctor. It could be caused by a number of things such as stress. Let's say that headache pain goes up another level and doesn't go away as easily and still comes back. Do you ignore it or do you go to the Doctor so that they can evaluate it?
There are losses that are a part of the process. You are free to ignore them. Then there are bigger losses that are not a good idea to ignore. For example, say you had 100,000 and you lost 5,000. That for most investors shouldn't be concerning. Let's say that 100,000 turned into a 30,000 loss bringing your account to $70,000. At what point does the pain get your attention?
With all due respect, to one of the legends of Wall Street, John Bogle, that is not so good advice. I get where he is coming from. Instead of ignoring it, consider these steps.
Know the amount of risk you are taking - Understand the full amount it could go down and make sure you are comfortable with it.
If you are uncomfortable with it, decrease the amount of risk you are taking to a level of comfort you can handle.
If you are still uncomfortable with it, abandon your Plan A investment strategy and consider a Plan B investment strategy.
The reality is that there are options when the market is falling. However, you will never know them by ignoring your statements. If you want to discuss investment options, please feel free to ask me your question on the "Ask Bob" page.
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