5 Things To Do Right Now While Markets Are (Not Really) Crashing
“This is a test; this is only a test. Had this been an actual emergency …”
The truth is, the markets are not crashing as I write this blog. In fact, overall market temperatures have been mild for so long, many newer investors have yet to weather a perfect market storm. Even if you have, you may have forgotten how panic-inducing those times can be.
Experience and evidence alike show us how severely bear markets test investor resolve, sabotage otherwise solid plans, and just plain hurt. We’ve also seen how damaging it can be to act on rash fear rather than rational resolve during market downturns #StickWithThePlan.
So let’s pretend, shall we? Just as we prepare for other emergencies by practicing how to avoid deadly mistakes in the heat of the moment, here are 5 timely actions you can take when financial markets are tanking … and, frankly, even when they’re not.
- Don’t panic (or pretend not to). It’s easy to believe you’re immune from panic when the financial sun is shining, but it’s hard to avoid indulging in it during a crisis. If you’re entertaining seemingly logical excuses to bail out during a steep or sustained market downturn, remember: It’s highly likely your behavioural biases are doing the talking. Even if you only pretend to be calm, that’s fine, as long as it prevents you from acting on your fears.
“Every time someone says, ‘There is a lot of cash on the sidelines,’ a tiny part of my soul dies. There are no sidelines.” – Cliff Asness, AQR Capital Management
- Remember the evidence. One way to ignore your self-doubts during market crises is to heed what decades of practical and academic evidence have taught us about investing: Capital markets’ long-term trajectories have been upward. Thus, if you sell when markets are down, you’re far more likely to lock in permanent losses than come out ahead.
“Do the math. Expect catastrophes. Whatever happens, stay the course.” – William Bernstein, MD, PhD, financial theorist and neurologist
- Manage your exposure to breaking news. (Straight from my previous blog) You need to be wary of the media noise and headlines to get attention such as “the biggest plunge since …” While the numbers may be technically accurate, they are framed to frighten rather than enlighten you, grabbing your attention at the expense of the more boring news on how to simply remain a successful, long-term investor. When you become mired in the minutiae, it’s hard to retain your long-term perspective.
“Choosing what to ignore – turning off constant market updates, tuning out pundits purveying the latest Armageddon – is critical to maintaining a long-term focus.” – Jason Zweig, The Wall Street Journal
- Revisit your carefully created Metis LifePlan (or ask about getting one). Even if you yearn to go by gut feeling during a financial crisis, remember: You promised yourself you wouldn’t do that. When did you promise? When you committed to your personalised financial plan, your carefully planned investment strategy, allocated to various sources of expected returns, globally diversified to dampen the risks involved, and sensibly executed with low-cost funds managed in an evidence-based manner. What if you’ve not yet made these sorts of plans or established this kind of strategy? Then we encourage you to pick up the phone.
“The key to successful investing is to get the plan right and then stick to it. This means acting just like the lowly postage stamp that does one thing but does it well. It sticks to its letter until it reaches its destination. The investors’ job is to stick to their well thought out plan (if they have one) until they reach their destination. And if they don’t have a plan, write one immediately.” – Larry Swedroe, financial author
- Talk to us. We don’t know when. We don’t know how severe it will be, or how long it will last. But sooner or later, we expect the markets will crash again for a while, just as we also expect they’ll eventually recover and continue upward. I hope today’s blog will help you be better prepared for “next time.” I also hope you’ll be in touch if we can help. After all, there’s never a bad time to receive good advice.
Keith Matthews QFA MA
Metis Ireland Financial Planning Ltd t/a Metis Ireland is regulated by the Central Bank of Ireland.
All content provided in these blog posts is intended for information purposes only and should not be interpreted as financial advice. You should always engage the services of a fully qualified independent financial adviser before entering any financial contract. Metis Ireland Financial Planning Ltd t/a Metis Ireland will not be held responsible for any actions taken as a result of reading these blog posts