When Investing is ScaryDec 07, 2020
When I was twenty one I invested all my money in index funds. I had finally discovered the truth about investing that low cost wins, had fired my high cost adviser, and was ready to go. I placed my trades at the Texas A&M library and felt great about it. The year was 2007. A few years later in March of 2009 I was down 50%.
What went wrong? Was I foolish to think investing was a good idea?
No. I simply needed to have a long term perspective. I did nothing and am sure glad I did nothing as I am up considerably from investing at the high in 2007! I was tempted to overthink it and move in and out of the market, but I did nothing. I recommend the same to you for today's difficulties surrounding Covid 19.
Today is a scary day to be sure. Stocks are down and fear is high. Do nothing. I repeat, do nothing. If I have set you up with an investment plan, it included the possibility for days like today. Remember, investing is a game where money seems to flow from the impatient to the patient. You will hear 'experts' declare that this time it is different and that you should take cover while you can. Tune them out. Read books on investing instead.
The chart below shows the drop in dividends paid to investors during various recessions in American history. True investors consider the value from owning companies to be in the actual returns given over time in the form of dividends and earnings growth, not in the ups and downs of price action. The truth about my 2007 investing was that my income did decline on American stocks by 20% or so. Since I was not a seller, I did not care about price action drop of 50%.
The dividends came back in just a few short years. Stay the course and remember, this too shall pass, and the folks in the best shape at the end of this storm will be the ones who stuck with it. If I can be of service, feel free to call or email me.