What Should You Do When The Stock Market Goes Bonkers?

The stock market was sneaky strong this past year. The MSCI All-World Index was up 27% in 2019. The S&P 500 was up 31%. Those are big numbers when you consider that the global stock market averaged a return of about 6% in the last 10 years and 8.5% in the last 15 years. It’s often tempting to look at an environment like the current one and think “gosh, I should have been more aggressive, maybe I should be more aggressive in the future?” Now, this might not be an inappropriate mentality. But you have to keep things in perspective. Even if we exclude the 50%+ declines during the financial crisis the MSCI All-World Index still suffered six 10%+ drawdowns during the current bull market.

(Source: Portfolio Visualizer)

This is important because, as I’ve described previously, the stock market has to fall in order for its rises to be sustainable. To experience the long-term good you have be willing to experience the short-term bad. Sometimes that bad is really really bad. And typically those really bad periods are when everything is bad which is what makes stock market crashes so behaviorally risky – they compound your financial risks at the exact wrong times in life.

This is why you need to be skeptical of the lure to chase returns. I always tell people to bring things back to first principles and remember why you allocate your savings in the first place:

1 2 3
View single page >> |
How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.


Leave a comment to automatically be entered into our contest to win a free Echo Show.