If you\u2019re stressed about what is happening right now in the stock market, there is a better way to invest. This isn\u2019t about guaranteeing you a higher return. (For the record, if anyone guarantees you a higher return, stop reading that article or end that Zoom call).<\/p>\n\n\n\n
This is about having a plan for\u00a0how\u00a0you invest. Your plan should prepare you for times like this, when the stock market falls quickly. It should also prepare you for when the market goes up quickly (a it did right after the COVID-19 pandemic started). It should be a plan that lets you stay invested for the long term.<\/p>\n\n\n\n
But this investing plan is not the same for everyone, because each of us is in a different situation. People can stomach varying amounts of risk. That\u2019s based on what our goals are, how our brains are wired, and what we have lived through. In my case, when my dad died I went to the small bank in the Kansas town where he\u2019d lived and found a stash of cash in his safety deposit box. He had lived through the Great Depression. That was a time of deflation, and cash in the safety deposit box was what he needed to feel safe, based on the life that he lived. That isn\u2019t my plan, but it was his.<\/p>\n\n\n\n
Everyone is different. Yet everyone faces the same ups and downs in the public markets. So, what\u2019s your plan?<\/p>\n\n\n\n
If you find yourself tempted to make a change, think carefully about whether you\u2019re moving from one long-term plan to the next long-term plan. Trying to time short-term moves has more in common with gambling than with long-term investing plans.<\/p>\n\n\n\n
When I look back over my 50 years as an investor, I can make a long list of all the shocks that brought markets down. People now are talking about high interest rates. I remember in the early 1980s buying an apartment in Brooklyn with a loan that had a 15% interest rate. I didn\u2019t like it, but I didn\u2019t have a choice, because I needed a loan if I wanted to buy that apartment.<\/p>\n\n\n\n
We have to accept that shocks will happen, and prepare for them rather than try to predict them. This time there is inflation, fear of a recession, war in Ukraine and increased volatility. We don\u2019t know when any of this will end. We also won\u2019t know what will cause the next shock or when it will occur. The only thing I can guarantee is that it\u2019s going to be a surprise (because if it weren\u2019t, the market would have priced it in).<\/p>\n\n\n\n
As a long-term investor, here\u2019s the good news: You can capture the returns of the market without having to accurately forecast (which is great, since almost no one is consistently good at that). In times like this when stock prices fall, the market is setting prices so shares will have a better return and attract buyers. Going forward, people who buy shares at these lower prices have a greater chance of enjoying a positive outcome.<\/p>\n\n\n\n
This doesn\u2019t feel great if you still own once high-flying growth stocks, but that\u2019s why I encourage people not to buy individual stocks. I love that investors can easily diversify and spread out their risk. When choosing how much you want invested in stocks, balance the regret you would feel when markets go down with the regret of missing out when things turn around.<\/p>\n\n\n\n
When you can be a long-term investor and think in terms of decades rather than years, you have the greatest chance of capturing the power of compounding. Those little extra gains add up over time. It helps explain why over the past 95 years (including all those market shocks), the return for the overall U.S. stock market has been around 10% a year.<\/p>\n\n\n\n
Stocks rarely return 10% in any one year, but over time, long-term investors have been rewarded with that longer-term average. I think that\u2019s amazing. But I also know it\u2019s tough to stick it out, because it means that you have to get through these tough times, even when the market is going down and down.<\/p>\n\n\n\n
I don\u2019t like to tell people what to do. I never told my dad what he should do. But I do want to help and I know how stressful a bear market can be. I have always tried to share my perspective on investing with the hope that it can help people be long-term investors, who then have the greatest chance of meeting their goals. I know that right now is tough for many people. But I have seen over my career how many people have benefited from creating a plan that made sense to them and that they could stick with. It\u2019s not always easy, but it\u2019s the best option I know \u2014 and it\u2019s never too late to start.<\/p>\n\n\n\n
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