The Dow Jones just had its worst day in 2 years, and a lot of investors are left wondering what they should do next. Is it time to sell everything and head for the hills? Or is it time to be greedy when others are fearful and Buy Buy Buy!? The correct answer is, of course…
Don’t panic! It’s okay to be a little bit opportunistic, but for goodness sake don’t lose sight of your long-term goals. The media pundits and fear mongers will be out in full force this week. Ignore them! They are not looking out for your best interest.
For a little perspective on the big 3.5% one day drop for the Dow, keep in mind the market is up huge over the last 10 years, as you can see in the following two charts.
Relative to what has been happening in the markets, 3.5% is not a lot. It’s just that investors have grown accustomed to the market only going up in recent years, so a day like Monday catches people off guard (it’s kind of like the first big snow day of the winter—drivers everywhere completely forget how to drive in the snow!).
Be Proactive in Structuring Your Investment Portfolio
Now this next piece of advice may seem slightly braggadocios, but we reminded investors explicitly just two weeks ago The Market Will Crash (Eventually): Are You Ready? And again, a 3.5% one-day decline is hardly a crash compared to how much the market has gone up in recent years (and how much the market could go down in an actual crash). And the advice here (and in the article we just linked above) is to structure your portfolio appropriately for your goals so you are proactively ready for the possibility of an actual big market crash in the future. Again, the market will eventually crash again in the future, we just don’t know exactly when (and if anyone tells you they know when the next big market crash is coming—they don’t—and they are in fact full of it).
Structuring your portfolio for your own personal goals means, for example, if you are an income-focused investor—don’t go investing 100% of your nest-egg in volatile zero-dividend growth stocks. As you can see in the chart above, the volatile growth-oriented Nasdaq (QQQ) was down even more than the Dow on Monday. And in an actual market crash (say if the market were to fall 20%) at least quality dividend stocks will keep paying you income, whereas many of those growthy Nasdaq stocks pay you no dividends at all. For example, that was basically the point of our recent AT&T article. It won’t go up as much as high flying FANG stocks, but it will keep paying you a nice dividend—even in a market crash. And the same can be said about many of the securities we own—they’ll keep paying big dividends—even in an actual market crash.
Be Opportunistic—Consistent with Your Personal Investment Goals
It’s okay to be opportunistic, as long as it is consistent with your long-term investment goals. For example, if you are sitting on some extra cash that you’ve been meaning to put to work in the market, now is a better time to buy than last Friday simply because prices are lower. We believe in the unstoppable long-term power of the US (and global) economy, and over the long-term stocks (and dividends) are going higher. Disciplined long-term goal-focused investing has proven to be a winning strategy over and over throughout history. As you can see in our investment portfolios, we’ve built our them to include attractive individual investments across a variety of diversified investment sectors, industries and styles. You can also view the near-term performance of each of our current holdings relative to their “buy under” prices to help you identify particularly attractive investment opportunities right now.
Consider Selling Income-Generating Put Options
One of the strategies we write about frequently is income-generating options trades. Specifically, we like to write about selling out-of-the-money put options on stocks we’d like to own for the long-term because it generates attractive upfront income, and it gives us a chance to pick up attractive stocks we want to own at particularly attractive prices. For example, just last Friday we wrote about the attractiveness of selling put options on Exxon Mobil. It’s very important to note that the amount of premium income you can generate on these types of trades goes up significantly when the market get volatile like it just did on Monday. This creates some very attractive income-generating put option selling opportunities.
Don’t Do Anything Foolish
When the market gets volatile (like it just did on Monday) that is when many investors make unfortunate foolish mistakes. Again, a 3.5% one day decline can feel painful because we’re used to the market going up so much lately. But remember, from a big picture standpoint, 3.5% really isn’t that much.
If you’re portfolio wasn’t already prudently structured to meet your long-term goals—there’s still time. And along those same lines, again 3.5% isn’t that much of a move—so don’t going doing anything crazy. For example, don’t go dumping 100% of your nest egg into volatile growth stocks like Nvidia (NVDA) or Shopify (SHOP) because they were down more than 7% and 5% on Monday and you think “they’re due” for a rebound. Things can still get much worse before they get better, and that’s why it’s so important to proactively structure your investment portfolio to meet your needs.
And while we don’t know where the market is going tomorrow or next week (no one does) we believe strongly that its going higher in the long-term, just make sure your portfolio is structured to meet your personal long-term goals, and don’t let the big one day drop distract you from your long-term investment goals. Again, and as always:
No one (and we mean no one!) can time the market in the short-term.
Disciplined, long-term, goal-focused investing has proven to be a winning strategy over and over again throughout history.
Ignore the barrage of media pundits and fear mongering in the days ahead.
Be smart!