For most people, investing can feel like a long drive down the highway.
The sun is out, the road is flat, the music soothing. Even at 70 miles per hour the ride is uneventful.
Until, of course, you hit a pothole or enter a rough stretch of pavement. Your trip can go from a snooze to panic in a few seconds, easily.
We react to these moments, usually, with the practiced calm of an experienced driver. Drop your speed a touch, sit up, and make sure you have a good grip on the wheel.
If things settle down, back up to 70. If not, go slower still.
What we tend not to do in these situations is panic. No slamming on the brakes, no screaming, no erratic turns of the wheel.
That’s because we know that rash decisions in the heat of the moment can end badly. You could end up in a ditch, roll your car, maybe even crash into other drivers around you.
The price of overreaction is drilled into us from years of experience. Keep cool, assess, and resume course if possible.
Investing for the long term is really no different. We’ve had a long run upward in the stock markets. And now we’ve hit a rough patch of road.
The most recent bull market had been on course to set a record, closing in on 10 years of steady gains.
Things have changed, obviously, as I explain in this week’s MarketWatch column.
Market volatility is normal, of course, but we don’t experience it much of the time.
Like with highway driving, the real danger of a volatile stock market is not the volatility itself. Rather, it’s our reaction.
Don’t wreck retirement
Selling in a panic is just like slamming on the brakes at high speed. Chances are good you will come to regret your decision to sell, and you might even wreck your retirement by accident.
Instead, make incremental moves. Look over your portfolio. Decide if the level of risk you are taking is still appropriate.
Make a note to perhaps change a few small things about your approach, but don’t take any big decisions just yet.
There will be plenty of time later on to reconsider your overall investments. And you’ll be much better off making those calls in a calm, careful manner, after the road is smooth again.