1295: A Healthy Reminder That Stocks Don't Always Go Up by Craig Stephens of Retire Before Dad on Investment Advice
This is optimal financed daily episode twelve, Ninety five a healthy reminder that stocks don't always go up by Craig Stevens of retire before Dad dot com and welcome to optimal finance daily. My name is Dan. I'm here every single day reading to you from some of the best personal finance blogs on the planet and I wish you a very happy Friday. Hope you've had a great week so far, and of course as always. Thank you so much for being here with me and hey, if he didn't know we give away books on instagram pretty frequently lately, we've been doing it every Friday. So there's a good chance. We've got another one up right now if you're not following us there yet on Instagram, you can find us at old podcast but for now, let's not waste any time and get right to today's financial post as we optimize your life. Sign. A healthy reminder that stocks don't always go up by Craig Stevens retire before Dad Dot. com. Bull markets are glorious because they make just about everyone participating feel like they're a genius investor until the markets reverse and you lose money sometimes a lot of money. Then you feel like as you watch your net worth plummet. This month, we've seen some long awaited volatility return to the stock market's after fifteen straight months of steady positive gains. February. Arrived with a welcome correction. A correction is Wall Street jargon for down ten percent not to be confused with an official bear market, which is when markets are down twenty percent peak to trough. There's some more jargon for you the S. and P. Five hundred was down eleven point eight percent from its January twenty sixth ties to the February sixth lows. Since I'm still relatively young and my investment horizon is decades long I'm usually happy to. SEE The stock market decline lower prices mean higher yields to help build income streams and earn better total returns over the long haul. I've had some cash on hand in a retirement account because I transferred money out of my previous employers 401k plan into an IRA. This decline was a good opportunity to put some of that money to work in index funds since I didn't invest it all immediately after the transfer. These investments won't impact my taxable income portfolio since I haven't had a paycheck in more than four months there's still not much to invest but now that I'm back to work I hope to start investing more aggressively for dividends again soon. Fall and rise. The stock market tends to fall quickly and rise more slowly as David Gardner of the Motley Fool tweeted and mentioned on his podcast. Recently, stocks always go down faster than they go up, but they always go up more than they go down. When stocks fall quickly, the headlines are always sensational. The other day I saw multiple news sources reporting. This was the largest point drop in the of the Dow Jones Industrial Average though true that sounds scary too many ordinary investors as a percentage it was only down four point six percent not a good day but far from being historically significant. This recent fall in stocks was followed by swift rebound. So we didn't have much time to perfectly by the dip probably because everybody else was buying the dip since the fundamentals of the economy seemed to be sound unemployment is low corporations got a giant tax cut inflation is tame for now though CPI is starting to make people nervous. Now, that volatility is here, there's a good chance. It'll stay awhile as the markets digest economic data. In case, there's another swift decline. It doesn't hurt to keep some cash on hand that doesn't mean to sell stocks today to build up your cash reserves. It just means if you have cash in an account or your monthly cash flow is Rockin, it's Not. A bad idea to speculate that the market will decline below today's level again and to be ready for it. Now, some people might call that timing the market and scold you for it but as long as it's a small portion of your assets waiting for better prices is another way to add speculation to your overall portfolio if you can pick up. Ten percent or twenty percent or more below the market highs. It's easy money when the market inevitably recovers the only downside risk to that kind of speculation is lack of gains. Yet. Another oft repeated buffet quote Tila Straight appoint. UNLESS, you've hired an advisor or subscribed to a stock newsletter. You're on your own to make investment decisions. There's a ton of information out there but processing it into by or orders takes time and due diligence for many investors. It's not worth the effort that's why passably investing in index funds and ETF's has become so popular, you get market returns for doing very little work. It's the smart money move that could be preventing us from becoming rich. I've seen a lot of new investors become vocal advocates for pure index investing. They've made great returns in the bull market run since the March two, thousand, nine bottom. So of stock pickers, but bull market returns should not be mistaken for making smart individual investments. A rising tide lifts all boats nearly everyone investing in stocks during a bull market does well, the only ones who aren't are the people who don't invest in that's about half the population. Down markets on the other hand or where the decisions of individual investors can make a big impact on long term gains, they can make costly errors like selling you the bottom or turbo charge their long-term returns by buying near the bottom. You'll never by the exact bottom that's okay within a day or two of the bottom is still good. Since stocks always full faster it's a shock to the system and individuals. The sharp falls combined with the media hysterics, and the sudden depletion of wealth can make people do funny things even though everyone knows lower stock prices means you should hold what you have and buy more many investors do not. They sell despite the famous Warren Buffett quote be fearful when others are greedy and greedy when others are fearful. But when scary market volatility arrives few, have the cash ready to buy at the lowes. That's a downside of always being fully invested. Buffet has the money. People sell in down markets for lots of reasons fear is a big one to preserve capital is another or to take tax loss a euphemism for buying high and selling low. This market hasn't been a straight shot up since two thousand nine. It's been difficult at times and can get a lot worse but over the last few years, especially, the past fifteen months until late January investing in stocks says felt like easy money. About a year ago, my young co workers were bragging about winning trades they made on the Robin Hood App I. Prefer M. One finance, which is also free up until this month, they were still bragging however, this recent selloff is a healthy reminder that investing does get more difficult that said, if we reach new highs again soon, and the last few days we've been going in that direction investors will quickly forget about last week's dip and investing will seem easy again until it gets worse. I will now look into my crystal ball and tell you exactly when it will get worse. This section left intentionally blank. Conclusion. The moral of this blog post is as follows corrections and bear markets are great for long-term investors be happy we had one. It's okay to not be fully invested all the time have some cash on hand for the next downturn buffet always does you'll never buy at the exact bottom within a few days of the bottom is still really good. Investing gets harder than this. Seemingly healthy companies can go two zero. Is Fall thirty percent or forty percent or more. Don't invest in stocks if you. CAN'T AFFORD TO LOSE money. Keep the long-term in mind when the market tumbles. Smile and buy some more remember it can always fall further. You listen to the post titled a healthy reminder that stocks don't go up by Craig Stevens of retire before Dad Dot Com. And a real quick thanks to anchor for hosting. This podcast anchor is the easiest way to make a podcast. They'll distribute your podcast for you. So it can be heard everywhere spotify podcast, Google podcasts, and many more. You can easily make money from your podcast to no minimum. listenership anchor gives you everything you need in one place for free, which you can use right from your phone or computer creation tools allow you to record and edit your podcast. So it sounds great download the anchor APP or go to Anchor Dot FM to get started. And that's going to do it for today. Hope you're having a great day and start to your weekend if you're listening in real time. Thanks so much for being here with me and I'll be back here over the weekend reading to you, and that's where your optimal life awaits.