For many investors, the wounds from the bursting dot-com and housing bubbles may still be raw. With volatility striking global markets, the advertisements touting another imminent market crash aren't hard to miss.
So how can investors remain calm when there's so much noise out there playing up the potential fears of a market crash? One of our listeners put that question to us:
What would you say to calm the fears of investors when there are so many warnings of a looming financial crisis?
The first thing that comes to mind is something that we've written about a lot, and that's diversifying your money based upon your time horizon.
Thinking back to 2007-2009, we were living in the midst of a major retraction; as many market indices lost more than 50 percent of their value. And while it's certainly true that our clients probably had less overall wealth in March of 2009 than they did in the autumn of 2007, the market retraction didn't affect their standards of living.
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Our clients that wanted to retire still retired. Our retired clients didn't feel like they had to return to the workforce. Our snowbird clients still went to Florida and Arizona in the winter months. They didn't have to dramatically change their lifestyles since their short-term money was largely insulated from the volatility in the financial markets.
Not only were they able to maintain their lifestyles, they were also in a position to prosper during the bull market of 2009-2015. The losses they incurred were paper losses-their balances may have dropped, but since the assets that decreased in value were mostly in their long-term buckets, they didn't have to sell at the bottom. They could instead wait for markets to rebound to negate those losses.
Typically, those using fear may have ulterior motives at play. Perhaps they're trying to sell you something or their own holdings may benefit if there is a large sell-off in the markets. Whatever the reasoning behind the doom and gloom being prophesied, remember that it is virtually impossible to predict the markets over shorter periods of time (less than 36 months). Occasionally, people will get lucky when timing the market, but there are very, very few people who get lucky multiple times in a row.
Instead of succumbing to the fear of a market drop, you should instead be asking yourself whether the markets will appreciate over the next 10-15 years. If you believe the answer is yes, as the two of us do, then you shouldn't worry too much about your long-term money's exposure to the stock market. And if you decide that now is a good time to consider selling some of your equities, it shouldn't be because you're trying to time the next market crash; it should be because it makes sense when considering your comprehensive financial plan.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Bruce Helmer and Peg Webb are financial advisers at Wealth Enhancement Group and co-hosts of "Your Money" on KLKS 100.1 FM on Sunday mornings. Email Bruce and Peg at yourmoney@wealthenhancement.com .
