The Market Always Moves, But Does it Move You?
We often compare it to a roller coaster, so let’s take an actual minute and think about that experience. Twists, turns, stomach churning drops, awe inspiring heights, sometimes even upside-down loops, but we are strapped in. At the end of the ride, some of us get off smiling, others not so much- but we can’t get off mid-ride.
Having worked with the PFG team you have the tools to stay the course. We didn’t need to predict a market drop; we began by expecting it. Logically we understood drops are inevitable just as we understand that given time the market inevitably continues to climb. Let’s examine those tools:
Family Safety Net
We asked how much do we need in cash so we don’t “sell-off” when the market drops. Most put aside anywhere from 3-12 months of expenses, with the understanding the emotional security is more important than inflation eating rotting our cash.
Dollar Cost Averaging
We said the remembering the technical term may not be important but the habit it forms is. Most of us invest the same dollar amount every month, ensuring the money we earn, is employed for us, building towards our goals. We do this without paying heed to daily market prices.
Diversification
We aim to own a broad overview of the market. We don’t attempt to predict or rather bet on the performance of a single company. We don’t assume we are smarter than the market. Put ego aside, we are all on the same ride, there are no shortcuts.
Non-Correlated Assets
We understood that there will be a time, later in our financial journeys, where we will need to sell down assets to maintain our desired lifestyle. Given time the market always goes up, but we see it doesn’t go up every year. We know we aren’t supposed to sell when the markets down, so we accumulated a buffer designed not to drop when the market does.
With that settled, what about buying the dip? The Oracle of Omaha, Warren Buffet, doesn’t claim to predict market cycles but he has said “be greedy when others are fearful.” Make sure you are comfortable with deep and long dips. If so, you already have the framework, it’s the same as we outlined above. Assuming you are comfortable and have dry powder in excess of your safety net then:
Dollar cost average it in
You may want to create an expedited schedule while dollar cost averaging in your dry powder. Don’t try to predict the exact bottom; don’t forget you didn’t predict the drop.
Maintain Diversification
Buying the dip we are already getting aggressive, but we are doing so with the historical knowledge that given time the market moves up. Here is the rub, while the overall market goes up many individual companies bite the dust. From 1950-2009 the market went up as it always does over a broad window of time, but 78% of publicly traded companies disappeared[1].
