There’s a reason I don’t post about the stock market very often. Once you understand how it works and how to invest in it, there’s really not a lot that changes. It really feels like things are on auto-pilot after a while: every month you get paid, cover all your expenses, and use the excess to buy a sliver of every single company in the US market1Using VTI or VTSAX.
Of course, the “difficult” part in all of this is the emotional fortitude required to stay the course when the market crashes. Having never experienced a major market crash myself, I only know what it’s like from reading about it. Honestly, it sounds pretty bad. Apparently, in 2008, after the market had already lost 50%, people were predicting another 2/3 loss from current prices2According to JL Collins, although I can’t find the exact post/talk at the moment.. That’s the environment in which one should buckle up and stay the course if one really wants the prosper. That’s how this game works, and if you flinch when times are tough, you will almost certainly lose money. I like to think, and maybe I’m just being naive, that when that time does come I won’t have a problem staying the course. It shouldn’t really be a shock–I know it’s going to happen in my lifetime. And probably multiple times.
This is why I’m a little surprised at how worried people are with this little blip we’ve had in the last few months. If you haven’t really noticed it–good for you. It’s really not relevant! We’re not doing this to make a quick buck after all, we’re in it for the long haul. Who cares about these little fluctuations; market volatility is part of the game. So when I hear about people posting on facebook about how much money they’ve lost, or be hesitant to invest their money in the stock market, or talk about how the charts suggest we may be about to lose 22% in one day3HAHAHA! it makes me scratch my head a bit. I mean, if this little blip has got you worked up, you’ve got a lot of work to do before you can think about calling yourself a real investor. Because at the end of the day, only a few things matter.
- The market goes up. Underneath the noise of daily, weekly, or monthly volatility is the actual ownership of 3600 quality companies–literally millions of workers and the country’s greatest minds working to make YOU rich! And after every major crash, the market has recovered and reached new highs.
- We can’t predict the future. The market may continue to go down. Or it may be at the lowest point it’ll ever be again. We simply don’t know which is true. And anyone who claims they do is either very confused or stands to make money off of their predictions.
- Because of points 1 and 2, the best approach is to simply buy the market, never sell, and continue to buy whenever you have extra cash. If you are waiting for the market to “finish crashing”, or have the means to start investing but are too afraid, you are playing the market timing game! And history has taught us that this is a losing game indeed.
So toughen up and stay the course! This little blip is nothing. There will be worse to come. And when the market does crash, rejoice! That’ll be a sale you won’t want to miss out on.