Coming off of two extremely strong years in the market, and amid all sorts of political chaos in the country, it’s a tenuous time to be an investor. Market crashes happen fairly regularly — in fact, we’ve had two huge drawdowns in just the past two years! And yet, the market has surged to all-time highs.
One thing’s for sure — another crash will happen again, whether tomorrow, or years from now. But for those currently holding investments, or hesitant to buy into this somewhat frothy market, here’s what happens if current fears topple over into a market crash.
Move No. 1: Keep some perspective
Rapid market declines can be awfully scary. The March crash in the wake of Covid-19 was harrowing, and despite my writing this article about being level-headed, even I was not immune from some emotional trading back then. But hey, that’s why they say, “do as I say, not as I do.”
But remember, as long as the world goes on, people will need to buy goods and services from someone, and that means at least some public companies will continue to make profits and grow. That goes even for when people need to shelter-in-place to save themselves from a global pandemic, shutting down a portion of the economy.
Of course, the events of last week were harrowing, and certainly led many to feel a great sense of instability. However, investors should keep some perspective and remember this Warren Buffett quote:
In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.
That doesn’t mean a big external event won’t cause the market to go down in the near-term; however, over the long-term — short of an authoritarian takeover of the U.S., and the shutting down of all private business — the market’s long-term trajectory is up.
Move No: 2: Make sure the short-term is taken care of
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