The Bull Market is over, and we’re now in Bear country after stocks dropped over 20% below February’s record-high. The last time markets fell like this was during the financial crisis.
It’s officially gut-check time, so we’d like to tell you a story about two investors who lived through a Bear Market, and how their decisions during the correction effected their lives ever-after.
One investor, we’ll call her Pandora, was looking forward to her retirement when markets fell. She watched as her 401(k) lost 10%, 15% and even more in a few short weeks. After getting used to years of gains, she felt as though all her hopes for a comfortable future were evaporating right in front of her eyes. She saw footage of trading floors and full-on panic, and listened to the experts talk about the end of the world as she knew it.
Watching her portfolio fall, losing the value it has gained in the market’s record-breaking run, was too much for her. So she logged into her account and cashed out to avoid losing any more.
“I’ll reinvest when the panic is over,” she told herself. “Selling is the best way to protect myself.”
So, she waited and waited. By the time she felt safe enough to get off the sidelines and back into the market, the bottom was long-past. But, she had missed some of the best market days in a decade.
Pandora became one of the cautionary tales of investors who had to defer their retirement for years because they gave into fear and made emotional decisions.
Athena was already retired when the Bear Market hit. Even though the headlines made her anxious and she felt like the shy was falling, she stuck to the strategy she and her advisor created.
“We planed for this,” she reminded herself when the worries would hit. “Selling is the worst thing I can do right now.”
She remembered that emotional decisions are usually bad ones, and trying to time the market by jumping in and out doesn’t end well. So, she held on as her portfolio value see-sawed and dropped about 10%, 15% and even more… and then finally started rising again months later, once markets hit bottom and investor’s sentiment became positive again.
Athena’s portfolio grew during the recovery, helped along by the tactical investments her advisor recommended.
Both Pandora and Athena had their life-savings on the line — both of them worried about their portfolio, their retirement and their financial future — what do you think made a difference in their outcomes?
Athena trusted the process and stuck to her strategy. She didn’t let the market panic override her good sense.
Don’t be a Pandora, be an Athena.
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