It’s funny how the old adage “Buy low, sell high” is rarely practiced.
When stock markets fall, many people sell. When stock markets rise, they buy.
I used to run a site about college savings plans. The site had an email list, and I noticed the number of people who unsubscribed from the list spiked during the “great recession”.
When unsubscribing from the list, people were invited to type a reason they were no longer interested in information about college savings plans. Here are some paraphrased examples people submitted:
“I just don’t feel now is a good time to invest in the stock market.”
“I will invest when I’m more confident in stocks.”
“Not investing right now.”
When the stock market rebounded, these unsubscribes and excuses went away.
People were doing what we often do, but not what we should. They were avoiding the markets when the DOW was at 7000, but buying when it crossed 15,000.
I was proud of myself during the previous market meltdown in the great recession. Having been personally affected by the dot com crash, I recalled that everything bounces back. So I kept investing as the markets fell.
While I’m patting myself on the back for that, I’m kicking myself for getting nervous when stock markets shot up later.
They’re overvalued, I told myself.
So I took a lot of money off the table when the DOW crossed 12,000.
Oops.
Over the past month we’ve seen another fall in share prices, but it has been rather small in the grand scheme of things. That’s why I’m continuing to invest now, even though there’s certainly downside risk.
If you’re investing for the long haul, you shouldn’t try to time the markets. They will go up and down. It will be painful to watch, but time is on your side.
But how do you do this in practice? How do you watch as your brokerage account balance drops?
A key is to tune out what your investments are doing. If you’re like me, you use Quicken or Mint to track your finances. It’s a great way to keep on top of your money. But is it really helpful to know the balance of your retirement accounts every day?
No. So here’s one way to stop checking your retirement account balances every day: Uncheck the box in Quicken that updates the value of your retirement accounts.