My Portfolio Dropped 8% - How’d Yours Hold Up?
It’s been nice to see the stock market hold its ground and have some pretty good days lately, but I opened my mail last week to find my quarterly statement that summarized my portfolio. The first thing I noticed was that my investments had almost dropped 8% this past quarter it was hard to stomach. How did you do?
Even though this was to be expected, it does not make it any easier to look at the big red, negative number. But this doesn’t change a thing about my long-term outlook and confidence in the stock market. From the research I did on Buying the Housing Slump, it’s proven that a diversified portfolio generally beats real estate investments and is a reliable strategy to increase your net worth.
Did you know that the stock market has never produced a loss in any given 15 year history? That means that based on historic data there is a 0% chance in losing money when investing in the stock market. What other investment can return an average 10% return without any historical risk.
So while it is not easy to look at my financial statement and subjectively convince myself that it is a good idea to keep investing, I know objectively that this still is a great a time to invest. The market is unpredictable, and it is generally just a few key big performing days that make one’s portfolio profitable in a given year. So for now I am going to continue to take advantage of the short-term volatility and keep investing on the down days in order to be “in” the market when the rebounds occur.
If you are having trouble being “in” the market, remind yourself why you are investing. You know there is short-term risk that allows stocks to be a good investment, you know that over time your portfolio will be profitable over time, and you know that compound interest will make you rich. If you are selling simply because of panic, all you are doing is locking in your losses now.
As Robert Arnott, founder and chairman of Research Affiliates, states:
The way to respond to this kind of market is not to ask yourself, ‘What do I do to make money in the next three months?” but “What would I want my portfolio to look like over the next 30 years?
Take advantage of the opportunity to buy cheap investments while you can. Opportunities like these only happen a few times in a lifetime. This is when the rich become ultra wealthy.
Millionaire Money Habit: Ignore the short-term performance of your portfolio, and remind yourself why you are investing in the stock market. Now more than ever it is important to stick to your investing rules and invest in a properly balanced portfolio. -RT
photo by El Gran Dee
I don’t have a full portfolio yet but I was experimenting with different possible asset allocations recently to try to find what type of distribution would lead to a gain when major asset classes were showing moderate losses. I couldn’t find an allocation that made sense and did better than a small loss during all the recent issues - then I realized that wasn’t the point. I hope I don’t take 40 years to become financially independent, but that’s how long someone in my position would usually expect to have before they start using their investment assets.
Based on that fact it’s absolutely ridiculous to think that I have to come out ahead every single year until I can support myself without needing to work. Instead, until I need to get more conservative, these are the best years! Not only will a well-diversified portfolio minimize your losses, but when key asset classes drop like this your freedom just got cheaper. If you’re planning to keep investing in them for decades to come, an 8% drop in a quarter is great news. Indeed, I’ve found extra money to put into investments that had just lost value several times over the last 9 months.
I recently moved one of them into more conservative short-term savings after gaining 5.5% over 90 days - I had my fun with a small investment and came out ahead. But once I get my full portfolio running, I’ll look for times like this and find every dollar I can spare to take advantage of good prices.
My portfolio dropped 10%. No worries though, I look at this as a great opportunity to buy stocks at a great value. You are exactly right. I think I read somewhere that within a given year, the majority of your success falls within a few good days.
quote: I think I read somewhere that within a given year, the majority of your success falls within a few good days
That’s exactly right, and why it is impossible to try to time the market. Nobody can predict those days that make or break your year, so the best thing is to think long-term.
As long as you are not down 8% next quarter and the quarter after that. I have the traditional investments in stocks, mutual funds, money market, etc. and I have a self-direct IRA that I use for more creative investing, like real estate. I find that this helps me achieve much more diversification.
You haven’t lost a thing unless you had to sell those assets. Your 8% drop is just a paper lost. History proves that the stock market has had 3 good years for every bad year. Even most of the recessions in the last twenty years have not lasted long. I agree with most of the replies, as long as you are saving, when the market is down, you will receive more shares of the investment (stocks/mutual funds/index funds/etc) for the same amount invested.