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How to chill while the stock market falls

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Moving to UK Workshop: Sun 3 July, live online + Q&A

If you are thinking of moving to the UK in the next couple of years, learn what you must do in advance pre-move and then get right post-move to avoid very expensive mistakes and tax problems.

Interactive Brokers Workshop: Mon 11 July eve, live online + Q&A

IB is a fantastic platform for expats – low-cost and effective. Rather than spending hours trying to figure it out for yourself, let Tuan & I show you how to apply, transfer money in & out, buy your funds, and manage your portfolio via laptop and mobile.

“It was extremely informative and equipped me with a lot of useful knowledge. As a newbie to investing with IB, I feel 100% more confident now! It was all explained in simple terms that anybody can understand.”

Everyone has a plan until they get punched in the face. I would add “A wise man said” but I don’t know how wise Mike Tyson really is. He sure knows a thing or two about getting punched in the face though.

When the stock market suddenly falls dramatically like this week, it can feel like your dreams of retirement are getting punched in the face and the gut, maybe a karate chop on the back as you go down also.

We spend a lot of time at my weekend workshops talking about how to minimise risk and handle the psychological pressures of riding the markets. Because these pressures are real and they are the hardest thing about investing, given everything else takes about 4 hours per year.

The pressure is not like Sully trying to land a plane on the Hudson river, where experience, quick-thinking and evasive action matter. The pressure comes from having to do nothing in the face of hysterical calls to flee.

News articles talk about a ‘Dow Jones’ bloodbath. Why? Lots of red charts when stock prices fall but mainly BECAUSE IT WILL MAKE YOU READ THE ARTICLE. I don’t care if you read it or not, you just have to not act on it. Even better if you refuse to feel any churning in your stomach.

Mrs Steve casually mentioned her friend’s boss yesterday, who had sold all of his stocks, waiting to jump back in when everything calms down. This message spreads fast (like a virus?), jumping from water cooler to water cooler. Sell!

So here’s what you’re going to do.

1) Don’t sell. People who sell never know when to jump back in again. Chances are you won’t and you will miss out big time. You will feel like you are being slapped in the face every day with investing decisions and wish you had just ridden out those punches.

2) Buy. If you have some cash, why not. If you buy today, you probably saved nearly 6% on what you would have paid a couple of days ago. All I ask is that you buy with a 30-year mindset. Here’s a nice chart to show you why.

Below is the Dow Jones index since 1980. The Dow is a weird and unhelpful US stock index of 30 large companies. People love to quote it because the index value is around 27,000, so there are plenty of days when you can say DOW JONES FALLS 100 POINTS. The more useful S&P 500, with a (completely arbitrary) value of 3100, not so much.
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There is a day on this chart when the Dow Jones index fell 22.6% in one day. The biggest one-day loss in its history. Can you guess which year it happened? Pick a year.
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Yep, Black Monday, 19 October 1987. And if you had invested on the Friday before Black Monday, you would have felt really stupid. Maybe, like your friend’s boss, you would have yanked out all your money on the Tuesday after, crying over your losses.

But in the context of today’s chart, Black Monday is a tiny blip, hardly noticeable. Draw a line between the top or bottom of that blip and where the chart is today – there’s barely a difference. That’s why it is so important to invest regularly and then get on with your life.

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3) Buy regularly. Every month. Or if you have less than $6,000 or so to invest every month then invest every quarter. But do it brainlessly, like clockwork. Then you will ride out all the thrills and spills the market has to offer, and barely notice, except your portfolio will gradually get bigger and bigger. Maybe not so gradually. Don’t forget your 30-year mindset.

If you want to take advantage, have a big push on earning income and slashing expenses, so that you can invest more. That’s about as market-timey as I’m going to allow you to be.

4) Dump in the lump. If you have a lump of cash to put in the market, it’s always best to just put it in, because the market always goes up on average. This can be crazily hard to do though, because the whole world is telling you not to. It makes sense that Coronavirus might squash global earnings for a bit.

If you’re feeling that way, just drip it in every month and if the stock market keeps falling, enjoy the discount you got for each one. The market will head back up at some point. And, assuming you can invest frequently, your regular contributions and dividends will start to dilute and then dwarf your lump sum.

So there we are, go and chill! If you’re really lost or panicking, come to my workshops while they’re still running or come and see me privately. Calmness guaranteed.

Have any questions or comments? Add them below.

Moving to UK Workshop: Sun 3 July, live online + Q&A

If you are thinking of moving to the UK in the next couple of years, learn what you must do in advance pre-move and then get right post-move to avoid very expensive mistakes and tax problems.

Interactive Brokers Workshop: Mon 11 July eve, live online + Q&A

IB is a fantastic platform for expats – low-cost and effective. Rather than spending hours trying to figure it out for yourself, let Tuan & I show you how to apply, transfer money in & out, buy your funds, and manage your portfolio via laptop and mobile.

“It was extremely informative and equipped me with a lot of useful knowledge. As a newbie to investing with IB, I feel 100% more confident now! It was all explained in simple terms that anybody can understand.”

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