As you have probably heard in the news recently, the first few weeks of 2016 have seen several of the global financial markets off to their worst year since…well…ever!
But what exactly does this mean for you, the investor?
Are things actually that “different” this time?
What should you do when the stock market crashes or declines more than you’re used to?
In this blog post, we’ll cover four steps (the four R’s) to take when the financial markets experience a storm like the one we’re in now.
Some things are easier said than done, but if you want so survive a market meltdown, these are some important steps to keep in mind…
A. Remain calm
Below is what most investors do when they experience a stock market crash or decline…
Usually, they see something negative in the news that prompts them to check their investment or retirement account balance.
When they do that, they notice their account balance is lower (sometimes MUCH lower) than the last time they checked it.
They get nervous…even fearful…and are anxious about what to do with their money.
They wonder, “Should I stay invested in the stock market? Or is now the time to sell everything and move to cash?”
More often than not, they will do the latter because they don’t have an investment plan, or the investment plan they have is built on a faulty foundation.
Then, after things calm down in the stock market and are more in line with what they perceive as normal, they move out of cash and back into the financial markets.
In other words, instead of buying low and selling high, which is what successful investors do, they tend to buy high and sell low.
How do we remain calm in the face of the storm and avoid the fear and anxiety that leads to poor investment decisions?
B. Reorient your hope and trust
When an investor is overcome by fear and anxiety during times of stock market volatility, it’s usually because of two possible reasons…
1. They’re not invested properly.
2. They’re putting their hope and trust in the wrong thing.
You see, by nature, we all struggle with putting other things (especially money and the things it can buy) in a place that only God should go…at the center of our lives.
Rather than trusting the One who OWNS “the cattle on a thousand hills” (Psalm 50:10), we tend to put our hope and trust IN the cattle on a thousand hills!
Why do we do this? What’s the primary reason we tend to put our hope and trust in our money and investments, rather than in Christ alone?
Because we fail to fully believe and apply the Gospel to our lives.
The Gospel is the good news that Jesus Christ, “…though he was rich, yet for your sake he became poor, so that you by his poverty might become rich” (2 Corinthians 8:9).
He did this by stepping down out of heaven and giving up almost EVERYTHING.
He lived the perfect life we desperately needed to live, but couldn’t. Then He died the atrocious death on a cross we so rightfully deserved.
He did all this so that through His death and resurrection, you and I might experience the deepest, everlasting joy in all the universe…the joy, peace, and comfort that is found in forever praising and delighting in Him for all of eternity!
Now, if you’re already a Christian, you probably agree with all of this, but you might be wondering, “OK Tyler, but what’s that look like practically? How should this reality play out in my life from an investing standpoint when the stock market crashes?”
C. Recognize that stock market and economic cycles are normal
Most investors think that a decline in the stock market is not “normal” and only happens once in a while.
The reality, however, is that advances and declines in the global financial markets happen every single day, not just during times of market turmoil!
Yes, when there is a stock market crash, these declines are typically larger than “average” declines, but that doesn’t necessarily mean the decline was “unexpected” in a certain sense or that a decline necessitates a change to your long-term investment strategy.
“Expected” at some point in the near or distant future? Yes.
“What has been is what will be, and what has been done is what will be done, and there is nothing new under the sun.” Ecclesiastes 1:9 (ESV)
This surprisingly simple, yet profound truth should give us some perspective.
It’s also important to remember that risk and return are related. If there were no “risk” and your investments never experienced a decline, there would be no opportunity or possibility to earn a higher expected rate of return.
But if we have the right investment plan and we maintain an eternal perspective, we won’t be as concerned about the day to day ups and downs of the financial markets, even when it might be more up and down than “normal.”
Now, we already talked a little bit about how to maintain an eternal perspective, but how do we come up with the right investment plan?
D. Reach out and seek wise counsel
If you don’t have an advisor, or if you’re uncertain whether or not your current advisor has your best interests at heart, the final step is to seek wise counsel from an independent advisor who pledges to act as a fiduciary at all times.
This “fiduciary” status means that the financial advisor’s recommendations will be based on what’s in your best interests, regardless of how it affects the advisor or his compensation.
In addition, an advisor’s investment philosophy is an important thing to keep in mind.
If the advisor doesn’t have a rock-solid investment strategy (like the third one on this list), then they’ll be tossed to and fro during the investment storms that inevitably pop up from time to time.
Finally, if the advisor operates from a biblical perspective, then the advice they give will be rooted in timeless financial wisdom that is backed up by decades of research in the field of financial science.
What’s your next step?
Obviously, if you’re a SageOak client, you’re already benefiting from these four steps (the four R’s) and we’ve reached out to you in recent days to update you on your investments and your financial plan.
But if you’re not a SageOak client, then you need to determine whether or not your reaction to the recent turmoil in the financial markets is in-step with the recommended course of action listed above.
If it is, then great job! Keep up the good work!
But if there’s any question as to what your next step should be, click the button below to schedule a complimentary initial phone call…
During this 15-20 minute call, we’ll explore whether or not it makes sense to pursue a possible advisory relationship for you and your family.
If it does, we’ll talk about where to go from here, and if it doesn’t, we’ll gladly help point you in the right direction!
In the meantime, stay tuned for our next post when we jump back into our ongoing series, “7 Simple Steps to True Financial Freedom.”
In that post, we’ll cover step 2 of The Stewardship Plan™ and we’ll talk about how to ensure your financial plan has a firm foundation before working towards other important goals, such as debt reduction and long-term financial freedom.