Often you notice that what seems like a big drop is either pretty common or pretty small.
For instance, looking at the Nasdaq Composite over a few time horizons:
- 6mo: https://www.google.com/finance/beta/quote/.IXIC:INDEXNASDAQ?...
- 5yr: https://www.google.com/finance/beta/quote/.IXIC:INDEXNASDAQ?...
- Max: https://www.google.com/finance/beta/quote/.IXIC:INDEXNASDAQ?...
Fine tuned for what?
Would I sell? No, would I call my family members to make sure they don't need help, or see if they’re concerned about losing their job? Yes,
Correct, you should not be concerned.
Time in market is more important than timing the market.
Remember that when the market falls, you have not lost money, not unless you sell. You may even judge it to be a good buying opportunity since you might assess the new lower price to be more reasonable. Over time, a diversified portfolio will expand in value due to compounding, unless you are not a believer that the future will be better than the past.
Take a look again at the charts - they spell it out clearly.
This is such a bad take, lol. It's a thing meme traders say to cope. You absolutely have lost money. You haven't realized the losses, but you are definitely poorer and should re-evaluate your risk tolerances based on your current worth.
You can take loans out using your stock portfolio as collateral. In attempting to do so, as you speak to a bank, they aren't judging you based on your initial capital investment. They're looking at the current valuation of your portfolio - unrealized gains/losses taken into consideration. That makes your current worth very real and tangible without needing to actually realize the gains/losses.
If taxes didn't occur when you realized gains/losses then people would stop saying this phrase. It's just something said to try and prevent anxiousness from increasing your tax burden. Fundamentally, you lose/gain money whenever the things you own change value.
My point is the if you sell, you realize the loss. If you stay put, it will very likely be recovered AND have grown in time.
Do you disagree?
There's absolutely no guarantees other than that. Yesterday's dip could be the start of the United States' "lost decade." The market could mirror the performance of the Nikkei 225's last 35 years where everyone is underwater for over a generation.
The recent overperformance of the US tech market is an exceptional scenario. People should not be encouraged to believe that if they buy into an exceptional scenario, and continue to blindly hold as their investments go underwater, that it's a sure thing that they will have more money at the time they are forced to exercise for life events. Especially in a time where many investors aren't picking broad, overarching index stocks.
What do you bet?
The solution isn't binary. You don't have to be fully exposed/unexposed to the market all the time.
The other 10% I play around with trying to time the market, taking active bets against specific stocks, etc. to sate the desire to feel in control / gamble and I rebalance the positions every couple of years.
The active positions have overperformed my buy-and-hold strategy for as long as I've been doing it. Our economy seems to be driven more on vibes than fundamentals and reading human emotion is more tractable than predicting the future, but it's also really stressful (and fun!) to do. I feel one of the biggest reasons to earn money is so one can spend less time thinking about money. So, I'm averse to having large, active positions since I start to think about my trades all the time and that feels innately unhealthy.
You've lost money regardless of whether it is realized. You can even find a very simple contradiction in what realization even is: if you bought a stock at 100, double up at 90, and now it's 80 and you sell some, how much have you realized?
Your total net worth is the same regardless of whether you thought you realized a unit of -20 or -10.
> If you stay put, it will very likely be recovered AND have grown in time.
You should think about what risk of ruin is here. If your investments keep going down, what's your move? Double up, because it will likely bounce back? I may not agree that the market is efficient, in fact I make a living out of the inefficiencies, but the degree of inefficiency is close to a rounding error: the current price is a decent estimate of the value, incorporating all known information.
Very happy with the outcome so far from real experience.
I’m just trying to be helpful. I don’t have skin your financial success and I’m not trying to change your mind.
They say long ago somewhere far away an astrologer managed to cause a panic by predicting a devastating volcano. People didn't just flee, they sold their homes for nothing, because they were convinced their homes would be under 3 feet of lava soon.
And that brings us to the key question - is your home worth less, just because everyone on the same streat is selling their houses for pennies? Isn't the opinion of the USGS slightly more important than the opinions of the real estate market?
It's easy to say that the homes were undervalued in that situation with hindsight. If disaster had actually struck then those prices seem fair. Clearly some people sold their houses just before Pompeii and made out like bandits.
Yes, you can apply a rationale mindset to things and use statistics-based inferences to try and calculate what the "real" value of something is rather than what the current, "market-based" value is and, more often than not, that's likely to serve you better, but black swan events still occur plentifully over a human's lifespan and those events are incredibly difficult to factor in when you need to optimize your wealth for practical usability over a couple of decades.
When you’re broadly invested in the market (diversified portfolio), you’re basically saying to yourself that you are optimistic that the future will be better than today. There will be more prosperity, more peace, more human flourishing. If you believe those things, then it is rational to be invested.
If, on the other hand, you believe the future is doomed, then I supposed it could make sense to withdraw all your money in a defensive move and, I dunno, do something else with it.
I know which path I choose.
Here’s one example: if you have a 401k, CD, bond, or investment fund your investment is illiquid for some lockup period. Therefore you don’t have to mark-to-market every day.
As a matter of accounting facts, you are not forced to book the loss in this scenario.
There’s a fun simulation to illustrate this - for those who think they know better, I encourage you to try it: https://personalfinanceclub.com/time-the-market-game/
Like I literally don’t get what the original person was trying to say. Yes, if you’re perpetually holding for the long term nothing really matters.
It is very true that it can be very very difficult for someone to absorb a drop in the market when they need that cash, like the case you mentioned.
I also assume that there are many people who have been bitten by this.
However, I have never seen data to suggest that statistically it is worse to be in the market because most people are likely to be hit by a huge drop that wipes out all their retirement savings and so they become destitute. I’m sure there are cases like that, but it is extreme and I would bet a minority of cases.
Most people follow the advice of gradually shifting your portfolio to debt and away from equities as you age, to reduce this risk.