The Market is Tanking. Why Stay the Course?

These are scary times. The market has not dropped this much, this fast, since the market declined at the beginning of the pandemic. The majority of financial advisors and money managers will advise you to stay the course, do not sell your stocks. When I managed money, I gave the same advice then and I would say the same thing today. Here are the reasons why:

• Only the money that you will not need for 5 to 10 years should be invested in stocks. The volatility that we are experiencing now is the reason why. Investing in stocks is risky and anything can happen in the short run.

• Although the losses are painful to see, they are currently only paper losses. If you sell right now, you will lock in the losses and make them real. The market will recover at some point and the losses will go down. If you can, don't sell.

• Most 401ks are set up to automatically invest a certain amount each pay period. This strategy is called "dollar cost averaging". This allows you to invest cash into the market on a consistent basis. That means, on average, you are buying into the market cheaper this month than last month. The consistency will help improve your return over time.

•  If you are currently drawing income and living off of your investments, hopefully you have the right asset mix for your risk tolerance and your withdrawal requirements. In positive years, your withdrawals will be funded from the growth in value due to price appreciation and the income generated by your investments. In down years, the withdrawals will come from the principal. If your asset mix is correct, you will still be okay over time, provided your withdrawal amount is reasonable. In general, to increase the chances of making your money last, you should not withdraw more than 4% of the value each year.

• If your investment time horizon is longer than 10 years, develop a systemic approach to buying into the market. Ensure you diversify among various asset classes. Diversification helps reduce risk.

•  If you have a financial advisor, but have not heard from him or her, give them a call to discuss how you are feeling, and to get their opinion.

• If you become very nervous and feel compelled to take action, consider reevaluating your risk tolerance and perhaps trimming your stocks by 5% (consult with your advisor).

Overall, you are still up from a few years ago! The market has been positive pretty much every year since 2009, except for 2015, 2018, and 2022.

I hope you find this helpful!

By Ylanda T. Wilhite