I guess it’s only human nature to get skittish whenever markets fall. Those feelings are exasperated for investors who have yet to experience a true bear market (2000, 2008). This year has been particularly difficult for neophyte investors who haven’t yet learned the patience and discipline of a long-term investor.

For example, on any given day when markets are down you’re likely to see a question like this one from a Reddit user, wondering if he or she would be better off parking their money in savings “until markets settle down.”

The problem with this thinking is twofold: First, this investor clearly does not understand what it means to be invested for the long-term. Logging into your brokerage account daily, reading daily market news, and focusing on daily market movements is the behaviour of a day-trader, not an investor. Second, this person is trying to predict the future, which to the best of my knowledge is impossible. If an unknown future is too scary for you then perhaps you need to reevaluate your risk tolerance and reduce your exposure to stocks.

For the record, the answer to this question isn’t to just stay in the market because markets always go up. If these are real fears for people then the stock market isn’t for them. Yes, the market does certainly go up over the very long term but it can be an incredibly bumpy ride along the way.

Compare the S&P 500’s performance chart for the past 30 days versus the past five years.

S&P 500 1-Month

S&P 500 1-Month

S&P 500 5-Year

S&P 500 5-Year

Investors need a dose of context to go along with their daily headlines and fear-mongering.

This Week’s Recap:

On Monday I reviewed the online will service Willful where you can create a legal will for as little as $99.

On Wednesday Marie continued her monthly series with April is a good month for…

And on Friday I explained the difference between tax deductions and tax credits.

If you’re in the market for a new rewards credit card I’d recommend the American Express Cobalt Card, which has the highest earn rate (5x points) on groceries and restaurants, and you can earn up to 30,000 rewards points in the first year when you spend $500 per month. Check out the card details here.

Weekend Reading:

In this excellent post by Ben Carlson he explains that the best and worst days in the stock market tend to cluster during periods of heightened volatility:

“The reason volatility clusters in the market is because losses instinctively hurt twice as bad as gains feel good. This loss aversion is a big reason why investors tend to make more emotionally-charged decisions when stocks are falling, which causes both panic selling and panic buying during a market downtrend.”

The Real Estate Bitcoin Wealth Expo took place in Toronto this weekend and Squawkfox Kerry Taylor was there to get all the sleazy highlights:

A new study found that nearly half of all investors who bought condominiums completed in the Toronto area last year aren’t making enough rent to cover their holding costs, despite chalking up exceptional gains on the value of their properties.

Mackenzie Financial Corp was fined $900,000 for excessive wining and dining of mutual fund representatives. Mackenzie manages $127B in assets.

Somewhere in your home there’s probably an old table, dresser or bookcase that’s far past its expiration date, but you can’t quite bring yourself to throw it away. Why not? The Ikea effect.

A recent Reddit thread shows some common misconceptions about poverty. Here’s why low-income families are getting terrible financial advice online.

Afford Anything blogger Paula Pant shares a counterintuitive idea for your retirement with a U-Shaped model of stock exposure as you get older.

0% financing, bi-weekly payments, no payments for 90 days? Here’s Global’s Erica Alini on how not to get duped when buying a car.

My Own Advisor Mark Seed shares his well-reasoned thoughts on millennial bashing.

Finally, Michael James compares medical advice to financial advice and the challenge that advisors have to explain complicated choices and outcomes in a way their clients can understand.

Have a great weekend, everyone!

Print Friendly, PDF & Email

Pin It on Pinterest