I'm a financial adviser, and this is my best advice for what to do when the stock market crashes
- If you're panicking about stock market dips - or even an upcoming recession - there are a few actions you can take to quell your anxiety.
- The most important thing to do: nothing. Your financial goals probably don't change, so neither should your investment strategy.
- Don't focus on what happens today or even this year; instead focus on what happens over the decades you have to invest until you retire.
- SmartAsset's free tool can help find a financial adviser to help with your own investing strategy »
If you've been investing for decades already, you're already accustomed to occasional dives and even the rare-but-scary full-on recession. And you already know that, like it or not, climbing markets tend to correct themselves at the worst possible times.
But, what if you're a child of summer - or someone who has been investing for less than a decade? What if you opened your retirement account in 2009 when the Dow Jones Industrial average dropped to a low of 6,443.27, meaning you have only watched your portfolio climb since its inception?
Or, what if you've been investing long enough but still can't stand to watch your hard-earned money disappear dollar-by-dollar, hundo-by-hundo?
In that case, you might be in a serious state of panic, wondering what you should do next.
Please, allow me to explain why you shouldn't be freaking out at all - and why you may even want to quit watching your investments all together. In lieu of panicking, here's what to do instead:
3 things to do now instead of panicking about the stock market
1. Take a deep breath
The stock market may take a temporary dive into no man's land. But, so what? Instead of freaking out, you should absolutely ask yourself this important question: "What has changed about your financial goals over the last week?"
Chances are, absolutely nothing has changed in terms of your financial goals over the last week, the last month, or the last year. So, why should a market drop change the way you invest? The answer: It shouldn't.
2. Remember that investing should be a long-term game
Warren Buffett once famously said, ""If you aren't thinking about owning a stock for 10 years, don't even think about owning it for 10 minutes."
In other words, to win in the investing world, you have to come up with a solid strategy for the long-term. Not for today. Not for tomorrow. But for ten, twenty, or even forty years - as long as you need to grow wealth to reach your financial goals.
If you're even remotely young, please trust me that these blips on the radar are going to mean almost nothing in the long-term. Why? Because, when you invest for the long-term, you should fully expect to win some and lose some as the months and years tick by. The only key to winning in the long-term is making sure you stay in the game long enough to make the most of the days when everything goes your way.
Case in point: We've been in a bull market for, what, forever? Well, this is mostly true, as there have been plenty of bumps in the road since the Great Recession of 2007-2009. If you'll remember, the stock market fell sharply in August 2011 after fears over European debts - and America's credit rating being downgraded to AA+ for the first time since 1941 - caused investors to panic. On the 8th of August that year, the S&P 500 lost 6.7% and the Dow Jones Industrial Average lost 5.6%, on a day that would go down in history as one of the biggest one-day drops seen over the last 20 years.
But, you know what? The world got over it and investments continued climbing from there.
Imagine if you had panicked and cashed out your investments on a dreary day in August of 2011. If you had failed to reinvest your money, you would have missed out on huge gains achieved since then.
The bottom line: Don't focus on what happens today or even this year; instead focus on what happens over the decades you have to invest until you retire. If you pay too much attention to the little blips, it can cause you to make drastic decisions that can lead to missing out on huge returns.
3. Think of your financial plan as a road map
If you're bothering to read this article, that means you probably have money stashed away in a retirement account or a brokerage account. That's absolutely great, but it may not be enough to get you where you want to go.
As a financial adviser, I always suggest my clients sit down to create an actionable and realistic financial plan that they can stick to no matter what. Why? Because you need a plan to follow if you don't want to "wing it."
Think of your plan as a road map you would use if you were taking a road trip through uncharted territory. With a map to follow, you would find your way through eventually. But, without a map, you may make all kinds of twists and turns. Heck, you may even end up back where you started.
The best part about having a financial plan is the fact it will tell you exactly what to do when the stock market tanks, which is usually nothing. A financial plan can help you see that, even though there will be good days and bad days, the final trajectory of your investments is the only thing that matters.
The bad news - and the news that may explain why so many people lose their minds when the stock market dips - is the fact that only a little over a third (36%) of non-retired investors in the US have a financial plan according to a Gallup poll on the subject. That's a lot of people wandering around in the woods without a map, a hope, or a prayer, isn't it?
If you need reassurance that the short-term ups and downs of the stock market are nothing to worry about, then my advice is to sit down with a financial planner who can help you create a long-term plan. Your plan will guide you through the many stock market catastrophes that are yet to come.
SmartAsset's free tool can help find a financial adviser to help with your own investing strategy »
Jeff Rose is a financial adviser who's the CEO and founder of Alliance Wealth Management LLC, an investment advisery firm. Jeff is an Iraqi combat veteran who served in the Army National Guard for nine years, including a 17-month deployment to Iraq in 2005. He is the founder of GoodFinancialCents.com and the author of "Soldier of Finance."
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