What to Do When the Market Crashes
For the long-term investor with decades until his or her retirement, a continual market downturn, like the one we have been experiencing for the past couple of months, is cause to rejoice. While many short-term investors and day traders are busy losing their shirts, we long-term investors can rejoice that our ETFs (see my own ETF portfolio here) and mutual funds are "on sale" with the safe assurance that the value of our investments will go back up as the market returns to equilibrium.
So one of the disciplines that must be cultivated as a long-term investor is to train oneself to look forward to market downturns in the short-run. While it is exciting to watch the talking heads, such as the boisterous Jim Cramer on CNBC, prudent long-term investors will avoid getting caught up in an emotional wave of panic or frenzy based on daily, weekly or monthly market trends. The trends that concern us long-term investors are over years and decades, and the long-term uptrend of the market as a whole makes the short-term fluctuations look insignificant at best.
If you instead want something productive to worry about, for you worriers out there, worry about these things:
If you have not yet enrolled in your company's 401(k) plan, especially your company matches a percentage of your contributions, then you are just being dumb as an investor. My wife has been investing in her company's 401(k) plan for about as long as I have been investing, and her portfolio is worth significantly more than mine due to her company's excellent matching (unlike educational institutions, blech!).
Likewise, if you do not yet have a Roth IRA set up for your retirement (or have one but are not contributing to it regularly), then again you are just being dumb as an investor. The government has established these programs with significant tax benefits to encourage people to save and invest in a responsible fashion. If you fail to take advantage of the Roth IRA or 401(k), then you are only making your future life harder than it needs to be.
The prospect of getting rich quick is exciting, but the process of getting rich slowly via long-term investing and saving is reliable. The effort and money you spend pursuing some get-rich-quick scheme would probably better be spent inside your retirement accounts. If you lose your money trying to get rich quick, you are missing out on thirty or forty years of dividends and returns that would have grown your money significantly.
So yes, the future is far off, but it is the actions you take today that will determine the type of future you will have. At the risk of setting up a false dichotomy, in the future you could either be struggling by on your Social Security checks (if you're lucky), or you could be living it up as you see fit. (Also this need not be a selfish thing, since being better off financially puts one in a position to make a genuine difference in world affairs through charitable contributions). By not saving you are virtually assuring yourself of the former outcome instead of the latter.
