How To Avoid Stock Market Losses
We are all aware that the stock market has had a dreadful December and is performing just terribly. There’s no secret there. I don’t need to spend too much time on that fact, but the reality is many investors are down 10–15% for 2018. This has been the biggest correction since the Great Recession and it come right around Christmas time and what seemed to almost be a response to the Fed raising rates.
If you lost money, you have 3 choices.
You can buy more. Many are touting the “it’s a giant sale! Buy all you can!” retort to the market correction. While this can be profitable, it is not the solution to market losses. The fact is, you could load up on even more just to realize the market drops even further. Today, there was a slight rebound, but that does not mean the correction is done. You see, just because something is on sale, doesn’t mean you need to buy it. If dog food was on sale, but you didn’t own dogs, would it really make sense to buy? I don’t think so. You should be asking yourself “do I need to own more shares”? If you don’t have a justifiable reason, then you are speculating and hoping for a get rich quick scheme. I don’t recommend this strategy to anyone.
You can hold your position. This is the advice being given to the middle class. The reasoning behind this strategy is that the market always goes down and it always goes back up. And if you wait long enough, you’ll make your money back. In fact, if you look at the past history of the market you can see that’s what it’s always done and so that is obviously what it will always do. A few flaws here. The first is called Recency Bias. Basically, just because something has been happening doesn’t mean it will continue to. The reality is that the #1 rule your financial advisor must follow is to make sure you understand “past performance does not predict future results”. Even they can’t tell you “it will come back up”. They’re not allowed to and even if they were, they don’t have any proof behind that statement. The other flaw with this approach is that while the market has always gone up, it is not alone. So has inflation and so have taxes. Wages haven’t. The average time between crashes hasn’t. The marketing is measured in dollars. So if inflation is going up, you can’t rightfully claim the market has always gone up without adjusting for the increase that inflation is responsible for.
Lastly, you can sell. This is a hard choice. Do you sell at a loss? Do you accept defeat? What if it goes up again? Let me spin it to you this way. When it comes to investing in the stock market you don’t make or lose any money until you sell. That means you will only lose if you sell, but it also means you haven’t actually made anything because you haven’t sold at a profit either. This conundrum of selling at a loss isn’t as difficult as it may seem to investors. You can’t lose what you didn’t gain in the first place. Think about it like hunting (I live in Alaska so this logic makes sense to me). You’re out hunting for a moose, right? Seeing a moose and having the chance to kill it and bring it home is not the same as killing a moose. A hunter could talk all day about all the moose they saw, but if they didn’t get one than they didn’t get one. Investors are no different. You can talk all day about your 401k value and how high it got, but if you didn’t capitalize on the gain then you never had it in the first place.
I don’t invest in the stock market. I think it is a scam that is manipulated by Wall Street, the Fed, and market makers that most investors aren’t even aware of. If I was in the market, I’d sell. Why? Because I don’t want to own shares. I need income producing assets that are indestructible. A share of stock isn’t either of those. The correction is proof that it is destructible. And the income, if there is any, is laughable. I would take my money out, learn my lesson, and then go invest in a real asset that can pay me income.
If you’re an investor and you would like the perspective of someone who doesn’t sell Wall Street financial products and services to help you decide what you need ot do with your funds click here.
Own Your Potential,
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