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[allgremlinart]

an important skill is recognizing my oppositional media consumption habits approximately a week or two before they hit catastrophic levels; this is a skill I have painstakingly developed over the years but I can now say with confidence its a skill I've mastered. I now know when to start filtering tags for something before my brain closes off any future avenues of media discovery.

[themoneybuff-blog]

Worried About the Stock Market and Your Retirement Savings? Read This.

In the last few days, a number of readers have written to The Simple Dollar regarding the recent downturn in the stock market. Here are a few of those notes, starting with one from Dave: 45 years old, aiming to retire at 62. I have been in the aggressive portfolio in my 401(k) since signing on back in 1998 and contributed regularly. I didnt pay attention to it during 2000-2002 or in 2008 but now I pay attention and these recent drops are killing me. How bad am I hurt if I move things to a less crazy investment? and one from Charlie: 61, was thinking about retiring next year but stock market is ripping my retirement apart! Help! and one from Ally: Im started to freak out about the stock market as I see my investments in my Vanguard index funds plummeting every day. I know I need to wait it out as Im only 34 but its really starting to panic me. Intellectually, I know to stay put and watch the gains as the market recovers but I worry that I may actually need some of that money before it goes back up and start operating from a perspective of scarcity vs. abundance (even though I have lived by the rule of thumb that if I think Ill need it in 10 years, put in high interest savings instead). All of a sudden I start imagining scenarios where Ill need it sooner and put my finances in jeopardy.Please help talk me off the ledge! Were all seeing the same thing. Depending on what numbers youre using, over the last two and a half months, the stock market has lost between 10% and 15% of its value. That means, of course, that if you have a large portion of your retirement savings invested in the stock market, youve seen a similar drop in the value of your retirement savings. Part of what has made this dip so stark is that it comes at the end of a very long positive run for the stock market, dating back almost ten years. Ten years of almost constant growth in the value of the stock market is a historical run, one likely only possible because of the enormous dip of 2008 which gave the stock market a very low point to start from. As you can see, those factors have caused a lot of people to panic and consider changing their retirement investments. My advice? Well in honest truth, I have not looked at my old 403(b) or my Roth IRA in the last three months. At all. Even if I did look, I wouldnt change a thing. Heres how my thinking works on all of this. We Look at the Short Term When We Should Look at the Long Term and Thats a Mistake The stock market is an awful short-term investment. It can lose a significant percentage of its value in just a few days, often seemingly without warning to the average investor. Even over the course of a year or two, you might have individual years where it goes up 20% and other years where it goes down 40%. Its really hard to plan around that. If you are going to need your money back in less than 10 years, you probably shouldnt be invested in the stock market. The thing is, most of us are more than 10 years from retirement. Were invested in stocks as a long term investment. Even people in retirement should have some portion of their retirement savings in the stock market because theres a good chance that theyre going to be around more than 10 more years and they should be investing for that timeframe. At that point a timeline of more than a decade you have to start looking at long-term returns and averages rather than individual years, because individual years arent really all that meaningful when youre looking at time periods beyond 10 years. I like to think of the stock market as a simple gambling game. Its a model that helps me make sense of it. Imagine that theres a game where there are nine red balls and one black ball that randomly come out of a tumbler, like drawing lottery numbers. If the black ball comes out, you lose 40% of your bet. If any of the nine red balls come out, you win 10% of your bet. However, you have to bet your whole retirement savings. What do you do? Well, for me, it depends on how many times I can bet. If I can only bet once, then its probably not a worthwhile risk. I could lose 40% of my bet right away! Not good! However, if I can just stand there and keep betting more than 10 times, Im going to do it and just keep letting my bet ride over and over again. Nine times out of 10, I win 10% of my bet, which far more than makes up for the 40% I lose one time out of 10. If I think about nothing but that first ball, Im probably not going to bet and Im going to want to take my money off of the table. Its only when I think about the fact that Im going to be around for 30 or so balls to come out of the tumbler that I begin to feel good about it. (In fact, I probably dont even pay much attention at all to the individual balls coming out of the tumbler, because it really doesnt matter to me.) The thing is, its pretty scary when the black ball comes out of the tumbler. Suddenly, a large chunk of our money is gone, and its really tempting to take your bet and run away. Thats silly, though. Its like quitting a game of basketball because you missed your first shot. If you were only going to care about your first shot or your most recent shot you wouldnt bother to play that game at all. If a basketball player quit when they miss a few shots in a row, no one would ever play basketball. At the same time, no one would bet their entire life savings on one single shot of the basketball. For most people, the stock market is a very long term investment more than 10 years and making decisions on that investment based on the last month or two is a grave mistake. Its like firing Michael Jordan because he missed 10 shots in the game last night and his team lost. Instead, look at the last 10 years of stock market returns when making your decision, because thats the kind of time frame you care about. Dont look at this chart when making financial decisions; look at this one instead. In other words, look at the long term, not the short term, because if youre investing for more than 10 years down the road, the short term is meaningless. We Listen Too Much to Current News and Media and Thats a Mistake The United States currently has three different major 24 hour news channels available on most cable providers, two devoted financial television channels available on many cable providers, and countless journalists and prognosticators trying to make a name for themselves on the internet, particularly on social media. All of that has to be filled with some kind of content, and its usually whatever content that they can find that will attract eyeballs. What attracts eyeballs? Fear. Its why disasters get breathless coverage. Its why the efforts of Washington are constantly painted to be doom and gloom and disastrous and even evil. That kind of coverage is constant, too its around the clock on news networks and social media. The same exact thing is true with the stock market. A 10% drop in the stock market really isnt anything unusual it happens every few years at least but to hear the news networks and social media and the prognosticators and the talking heads tell it, its apocalypse out there. The sky is literally falling, everyone is going broke, people are jumping out of buildings on Wall Street. Its being reported as something unique and something disastrous because thats what attracts eyeballs, and eyeballs are what makes the news networks and the reporters on social media lots of money. Theres so much time to kill and space to fill that the same things get reported on over and over and over again until the urgency of the supposed disaster seems almost overwhelming, driving people to emotional extremes. My belief is that social media and cable news are not very useful for understanding the world. They present current events from the singular angle that makes them the most money and thats through pushing emotional buttons, mostly fear. That emotional button drives people to poor decisions, and its abundantly clear when it comes to finances. In other words, social media and other news sources tend to encourage people to react emotionally to things rather than rationally. Investing is a rational game rather than an emotional one; if you make emotion-driven investment decisions, youre going to lose out. Thus, at least in terms of investment decisions on the scale of the individual investor saving for retirement, you should pay no attention to the 24 hour news cycle. It nudges you toward emotional decisions rather than rational ones. We Put Our Faith in Salespeople and Thats a Mistake Another problem is that many of the people out there talking about the stock market are effectively salespeople. They want people to buy some product theyre selling, whether its an account with their brokerage, their services as an investment manager, or an investment sold by their company. In general, brokerages make money when you do something with your investments, whether its buying shares or selling shares or something like that. They want you to take action regarding your investments. So, if the stock market is doing something, they have a financial interest in making it sound like a great reason to make a move. If you tune into CNBC or Fox Business lately, all of the chatter is about moving your investment money around to avoid getting hit hard by the stock market slide. Most of that talk is coming from guests who work for brokerages, who make money when you move your investments around. Always ask yourself where your investment suggestions are coming from and why theyre being given. Yes, that includes me. I write because I believe in what Im saying, and I make money by having more readers, not by convincing anyone to take any action. The more readers I have, the more advertisement views the site gets, and the more money everyone involved makes. Thus, it is in my best interest to do my best to give realistic advice and thoughts. With the talking heads on financial television, the goal of the host is to keep you watching, while the goal of the guest is to entertain you and, along the way, try to nudge you to their point of view because the guest makes money by being entertaining (from the network) and makes money by having more customers buying and selling investments (from their own business). In other words, take the words of investment advisors on financial networks with a grain of salt. Most investment advisors will do right by you in a one-on-one situation, but thats not their goal when theyre on television. On television, theyre there to entertain, to get the name of their brokerage out there, and to nudge people to take action on their investments whether its in their best interest or not. Practical Approaches Together, these three issues along with natural human risk aversion cause people to get extremely jittery when the stock market grumbles. Every time a 10% drop happens, I get emails and messages from readers with sentiments like those expressed by Dave and Charles and Ally. While I cant offer a perfect solution for everyone, here are five practical steps you can take to help quell the desire to make abrupt retirement moves when the stock market drops. For starters, just stop paying any attention to the day to day financial news. Dont watch CNBC. Dont watch Fox Business. Dont read financial news. Leave that to people who do this for a living and might change their investments every 15 minutes to try to score a short-term buck. Thats not the situation youre in and thus most of the day to day financial news is irrelevant. It provides you with information that isnt relevant to your decisions and emotional twists designed to nudge you to make a mistake. Just stop watching its not providing value to you. While youre at it, stop paying much attention to the 24 hour news cycle. Almost all of it is driven to trigger emotions and garner eyeballs, not to actually inform you in any meaningful way. Learn from well-researched books and well-referenced articles, not from hot takes and high pressure combative guest appearances. If youre taking financial advice from someone, know who that person is, where theyre coming from, and whether theyre trying to sell you something. Who is this person who is encouraging me to sell? Why are they saying this? What do they have to gain from it? If you can clearly see how they gain from your moves, take their advice with a grain of salt. Dont look at your account balance except on a regular infrequent pattern just to make sure everythings working fine. Looking at your balance frequently makes you start to overinflate the importance of day to day changes compared to long term changes, and its the long-term changes you care about. We often buy into the idea that we should be worried if our investments have gone down the last few times weve looked at them. Know what your plan is for saving for retirement and stick to it regardless of the news. A good plan is based on principles, and for retirement, that means staying put through thick and thin and only making changes in specific situations that you considered outside of the news cycle. Stick to that plan and dont let short-term changes and emotional responses change that plan. In short, stick to the plan and stop listening to people who are just adding noise to the mix. Good luck! Related: https://www.thesimpledollar.com/worried-about-the-stock-market-and-your-retirement-savings-read-this/