With many folks thinking about the stock market ups and downs this past month, I began to wonder...
What If you knew the stock market was going to plunge tomorrow, what would you do?
Many people would want to react and take their investment money out of the stock market. They would feel better if they had money in the bank rather than watch the media report the drop in investment value across the board. They would want to know their money was safe.
What if you knew the stock market was going to go up tomorrow? Now what would you do?
Many people would want to add more money. They would figure they could make money. Taking on more risk would be okay because after all the returns would be worth it.
The truth of the matter is, no one truly knows when the market will go up or down. If anyone tells you they know, be very surprised and very cautious. The market goes up and down on a regular basis. Yet, when it goes up for years, people get complacent, as we have since the 2008 declines. We have a new round of declines that may last a long time. Or they may not.
What is one to do? The answer is a middle of the road strategy. See the answers above to what you would do if the market was going up: Have some cash in the bank so that no matter what happens, you feel your financial life is safe.
For those times when the market is going up and you want to be buying investments, continually invest. Contribute monthly to your 401k, IRA or other retirement vehicle. A little bit on a regular basis makes a big difference in the long term.
There is no get rich quick scheme and no crystal ball. We all have to ride the wave of ups and downs. In the meantime, we can make balanced choices to control what we can. No matter "what if" scenario plays out, you will not be reacting.
Act in a balanced long-term way and think long-term.
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