As I write this post, the US stock market has shed 10% of its value over the past five days. The Chinese markets just opened for the day, and promptly fell another 8.5%. Let me tell you why this is the best day on the market in years.
We’re All Going to be Even Richer
Think about any commodity, like milk, or eggs, or gasoline. Prices vary from week to week, but there’s one thing we all know: the prices are always headed upwards. Investments are just another commodity. The price is always headed up, and ten or twenty years from now, we’ll all swap stories about how little a share of VTSAX used to cost.
Even better, your investments are a self-replicating commodity. The more shares you have at work, the more dollars they make. Having a chance to recruit a few more shares at 10% off will make you richer in the long run. Shares of a good index fund never spoil, go rotten, wear out, or need maintenance. They’re like little nymphomaniac rabbits of wealth.
Unless you panic and sell, you have just as many shares as you did yesterday. You have neither made nor lost any money until you sell. Your shares will be worth what they were when the market recovers, which it inevitably will. The longer the market is down, the more you get to buy at 10+% off. What a great day!
We’re All Going to Prove We’re Badasses
For many, including myself, who began seriously accumulating after the global financial meltdown in 2009, our reaction to a sudden and substantial drop has been largely theoretical. We’ve told ourselves that we won’t panic and sell, but how many of us knew for sure? If you’re like me, you may even have looked at the prices of 2009 with jealousy, pining for a crash like that and theorizing that “if you had only had it together then,” you’d already be rich.
A simple 10% correction (or whatever this ends up being) is just a dress rehearsal for early retirement. We all accept up front that at some point during a long retirement, we will see corrections, recessions, and maybe even depressions. We need to know that seeing a sudden drop in our portfolio value doesn’t cause us to lose sleep. More importantly, we need to be inoculated to the stress of seeing the market take a hit so that we don’t scurry back to work the first time it happens in retirement.
Buy Now? Wait for the Bottom?
Everyone with a little money to invest right now has to make a decision. Should you buy right away? Should you wait, and try to buy at the bottom? Should you wait until the market seems to be rising? The answer, of course, is yes. You should buy at all of these times.
What you shouldn’t do is try to time the market. If you have money now, invest it. When you get more, invest it. If the market seems to be recovering and you come into some money, invest it. There’s substantial evidence that Dollar Cost Averaging (a term for taking an amount of money you have in hand and investing it slowly over time) performs worse than simply investing as soon as you come into any money.
I have to admit that it’s hard not to try to find a little extra money to invest right now- I have to wait until I get paid early next month to do my scheduled investing. I might miss out on some of the bottom, or I might catch an even better sale in about ten days. Nobody can know, so it’s best to just stick to the plan. Over the long run, I will have bought low, middle, and high, but I will have bought over time, and it’s time that makes you money. Minor fluctuations (and in the long run, that’s exactly what this is) are just noise compared to the march of the market ever upwards.
The Best Day on the Market Means Delaying Milestones
I would be lying if I said I wasn’t affected by the market drop– I have been drawing close to the “$100,000 in stocks” mark for several months, only to have the goalposts inch a little further down the field. Just last week, I invested an additional $1,500 and had a balance of $99,981. Then the bottom dropped out. I wasn’t mad. I just rolled my eyes and had a little chuckle, because I know that in the long run, this means even more shares at work for me.
How are you reacting to the market right now? Are you stressing out? Or are you a cool cucumber, casually planning to swoop in and augment your growing portfolio?
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