Ray’s Take If it’s not another country defaulting on their debts it’s political gridlock on economic issues here or ominous predictions about the Federal Reserve. The news seems to be featuring more than its share of scary economic news these days.
The question is: What should you do? First and foremost, don’t panic. That’s when the worst investment decisions are made. Remember, bad news attracts more television viewers than good. Rarely are things quite as dire as those talking heads predict.
Secondly, the best course of action could be to do nothing. That doesn’t mean the market won’t react to bad news – and react badly. However, if you follow the herd and sell when everyone else does, you’ll be losing money. You might call it “cutting your losses.” I call it losing money. It sounds tempting to “play it safe” until you think it’s OK to venture back, but it rarely works.
Numerous studies show that those holding tight during market downturns usually come out better when the market rebounds. It might take time, but the alternative is selling when prices are low and then reinvesting when they go up again. That’s not the best approach to growing your nest egg. Don’t go looking for a crystal ball when simply avoiding fear and greed in investing will produce better results.
Even the smartest professional investors don’t know exactly when to move in or out of the stock market. But that doesn’t prevent a lot of salespeople from implying they know the secret. By the time you figure out they really don’t, it’s usually too late.
Maintain easy-to-access cash for emergencies along with an allocation matched to your needs and time horizon; structured to weather bad times and benefit from good ones. Then you won’t need to panic when bad financial news looms.
Dana’s Take Bad financial times can be a good thing for kids and adults. An economic downturn reminds us that what goes up will go down – so expect it and plan for it.
When prosperity is on the rise, it’s easy to plan only for continued prosperity. If you bought an expensive home at the peak of the real estate market, you know what I mean. Ouch.
It’s just as important for a child to learn about losing money as making it. Allow your child or young adult to feel the pain when he or she makes a poor financial choice. Don’t rush in with a bailout. Let the child work out a solution.
Don’t feel bad if your kids experience family financial setbacks. Those scary drops in the economy are a reality check. Were we spending and borrowing based on an exclusively optimistic plan for the future? Your kids will learn from it and may become great savers and financial planners some day.
Sometimes bad economic times can provide life’s greatest lessons.
Ray Brandon is a certified financial planner and CEO of Brandon Financial Planning (www.brandonplanning.com). His wife, Dana, has a bachelor’s degree in finance and is a licensed clinical social worker. Contact Ray Brandon at email@example.com.