Breathing Easy on the Financial Rollercoaster

by Sarah Winfrey on 19 September 2008 13 comments
Photo: epicharmus

In case you hadn't noticed, stock markets around the world have done some crazy things this week. At this point, I think we're all a little lightheaded, wondering if we should be worried and, if so, how worried. It's scary when people compare our current situation to The Great Depression and issue dire warnings about not withdrawing all of our money from the bank. It's even scarier when some of those predictions seem to come true. Panic seems the natural response, and yet we know that won't help the situation. So what do we do? What can we tell ourselves when doubts and insecurity start to creep in?

It Will Get Better

I'm sure you've heard this a million times, but I'm going to echo it again because repetition helps us truly incorporate an idea into our lives. All of the experts I've read say that we will pull out of this, and will probably do it within the next couple of years. When, exactly, in that time frame it will be varies, but the overall message is the same. There will be a day, not too far away, when all of this dizzing up-and-down will be a distant memory. The market will recover, and more of the motion will be positive instead of negative. 

All of that means that, right now, we win if we just hang on. Sure, the financial world is moving up and down so fast it makes our heads spin but, when it stabilizes, the one who is still hanging on is the one who wins. There's not much we can do now but clasp our fingers around that shiny metal bar and hold on for all we're worth. 

Investing is for the Long Term

Again, these words aren't anything new, but it's so good to hear them again when fear closes in. Just because our investments are barely holding their own or losing money right now doesn't mean they'll do that forever. In times like the present, this should be the mantra that we repeat as we go to sleep and that we know so well we can't get it out of our heads. Short term loss is perfectly acceptable in light of long-term gain, and that's what we're going for here.

If we really believe this, the numbers on the statement won't make such a difference. We'll be able to look at them and know they're not the whole story and, in fact, they aren't even half of it. We'll screw our courage to the sticking place and...well, stick with it.

Life Isn't All About Money

Financial concerns tend to try and take over our world. A little worry can invade and destroy an otherwise pleasant time. When it comes to the market, we can't do much about anything. Instead of holding on to our fears and letting them rule us, we can choose to let them go. That doesn't mean we deny the truth of the larger situation and what that does in and to us, but it does mean that we enjoy the things in front of our faces in spite of the situation. 

Family and friends, grass and trees, sun and rain...they're all free, and they're all things we can enjoy in spite of our financial situation. And, since the weekend is just beginning, take advantage of it. Let the financially-induced tension melt away in light of the things you can choose to enjoy. You'll be surprised how much it changes your perspective.

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Guest's picture
Guest

the last section. I couldn't agree more. Enjoy what we do have.

Guest's picture
Guest

I just tell myself they're all idiots. So far, I have been confirmed.

Guest's picture

It helps me to remember that the media is thee to sell the news. They need to make it as sensational as possible. If you just ignore the news and do as you said in you post we will all be better off. I liked ths post!

Guest's picture
katy

Sarah, I'm afraid this up and down won't be a distant memory for many of us. I have friends who work at AIG - rather worked at AIG, and Lehman, and it's parlyzing right now. This too shall pass but not for them or people around us. I just had breakfast with a few of them and they're kinda shellshocked.

That said, you provided a kind and thoughtful post as always. No sarcasm intended.

Guest's picture

It will get better, but that doesn't mean we have to participate in this mess. A little bit of knowledge will go a long way to help avoiding this.

First, the biggest challenge in investing in the markets is we give too much credence to the returns always being there for us, as well as assume that we can be successful as long term investors if we just throw money at a fund. Unfortunately, this attitude gets us into bad situations, and can easily be avoided.

We need to take an active role with our investments, because we are the only ones who genuinely care enough about whether we retire wealthy or not. You can't afford anything less.

Here are a few steps you can take next time:

1 - Learn when to get out. In my blogs, I discuss how by watching a simple volatility indicator, like the VIX indicator, can let us know when to get of the market and when to get back in. We avoid the volatility, we avoid many of the bear markets, corrections and crashes.

2 - Exchange Traded Funds (ETFs) should be a primary part of your portfolio allocation. You can't afford junk fees and management fees from mutual funds that drain your portfolio over time. This could make a difference of a few hundred thousand in your investing lifetime. Find an ETF with similar objective to your mutual find, and consider making some changes.

3 - Always use a stop program. Another benefit to ETFs is that you can use a stop program that automatically gets you out at a set price or percentage. That way, you can set it and forget it, and not become emotionally involved.

4 -Diversification is a must. Our national debt is almost $10 trillion. What that means is as the government adds more debt, the dollar becomes weaker. As the dollar becomes weaker, your money is worth less. You can counter this by investing in overseas ETFs.

If you are scared or frustrated from big losses, it is a sign that you need to have an investment approach about managing your money. It is not that hard. The few points above and some of my blog posts should help you get started in the right direction.

All the best... Cheaplee

Guest's picture
Jared

Remember the old adage, "Buy low, sell high"? Well the market has been low, and although it's hard to say if it will go lower, it's safe to say the market will be higher a few years from now.

People who take advantage of downturns in the market (eh-hmm... Warren Buffett) end up quite wealthy years down the line. I have been buying the market each time there is a huge drop. That has already been paying off. I'm excited to see my account in 5 years. As an author of InvestorPitStop.com
, I explore possibilities for investors of all experience levels.

Don't fret, be aware of opportunities. Enjoy your wealth in the years to come!

Guest's picture
Dee

Panic never helps, but I would advise everyone I know to withdraw enough money from the bank to last at least a couple of months in case of a collapse of the banking system. It's not as if there's no precident for it - there were bank "holidays" during the Great Depression and many people lost everything they had. FDIC is not a quick fix if your bank does fold, either, even if somehow FDIC stays solvent. Best case scenario, it would take weeks/months to process your claim. So, always have enough cash in hand to handle your expenses in case of an emergency. Even in this cashless society, it seems the prudent move considering current circumstances.

And stock your pantries. As an investment, it's hard to beat food right now. One thing we can be pretty sure of is that the price will go up. So, if you buy $XXXX worth of nonperishable groceries now, they will be worth more in six months. A return on investment that you can actually use just in case your other investments wind up being useless pieces of paper.

But don't panic. This too shall pass.

Guest's picture
Chirag

Lately we all have seen the stock markets corrections. Let it be the one in Jan or in March and not to forget the mayhem in the last week. What did this create ? Corrections created a sense of confusion. This confusion may cause a big harm to a nation. Recently a broker committed a suicide.
People invest hard core . Don't only be dependent on stock markets for money, this should be the second source for the people who don't really understand the markets well.
Here are few tips that one needs to do in such a situation.
Do what you think is right.
Stop listening to analysts.
Don't see stock prices every 20 minutes.
Be patient.
Speak to the real time investors.
Understand the market pattern / cycle.
Stop following any kind to tips.
Follow your sole Guru.
Last but not the least "Don't give up"
Written in IndianMoneyPlus.Com

Guest's picture

Change is the only thing that never change, everything else will change one day. Sarah, you have explored a nice thought that every situation that we are facing is not permanent, changes will occur in future to change our life-style.

Guest's picture
Edwin

Nothing can be better than a positive note. In times like this, we really need uplifting news. It is also important to count our blessings, not just focus on the recent disaster. And enjoy what those blessings are.

Way to go! Thanks for a very good article.

Guest's picture
johnson

If you own stocks then you can't afford to get news later than everyone else. Try easystockalerts.com for a week and you'll see what I mean. There is no fee and no spam...

Guest's picture
Sarah

I don't have a lot of money to invest, but I have been buying shares into some mutual funds every time the market drops significantly. Today, I actually have about $100 profit, which is outperforming most of Wall Street. My 'plan' is to just try to break even, while acquiring more shares for the next few years until the economy recovers.

I started with ING Direct's Smallcap indexed, and Real Estate funds, because you can start them with $100 and an automatic investment plan. It seems to me that indexed smallcap funds are doing better in general than largecap or midcap funds.

Guest's picture
garryparker

If you interested in stock market news and information here is a site called easystockalerts.com.