As the stock market continues to nose dive and bring practically all stocks to their lowest levels in history, I’m getting very nervous. This has me scared because I know if this continues, a recession may be on the way.
In seeing this trend occur, I try to stay away from the windows as one can get tempted to just jump. Although I say this jokingly, you get this urge to jump because you see your portfolio value dropping so fast, but don’t know how to stop it. In some foreign countries, they close their stock markets to stop the slide, but we don’t do that here.
Like myself, older people don’t like watching stock prices fall because it lowers the value of our retirement’s funds and we need these funds to live. For many of us, we can’t afford to take another financial hit like we did a few years back, where our stock market portfolios dropped between 40% and 60%. As a result of that situation, many of us are still suffering badly.
Although this is a scary time for us, here’s some advice on how to find the upside of this down market.
- In watching the press, which keeps reporting every few minutes that the stock market is continuing to drop, I tell my children and my younger relatives that this is ugly for me, but it’s outstanding for them. For anyone younger than 40 years old, hearing that the stock market is reaching record lows is good news for you. This is advantageous because you can buy stocks for your retirement account at a lower price. And, since these prices are lower, you can now purchase more shares for your 401(K), IRA, and pension fund portfolios with the same amount of money. This means that you will have a chance to build your retirement assets faster, which is always good. This is a perfect example of why people should invest as much money as they can into their retirement accounts when they are young since they have the time to buy all of these stocks at low prices, whereas older people don’t have the same opportunity.
- For parents, when you see the stock market fall, use this as an opportunity to buy stocks for your children’s account. Again, they have time on their side and when the prices of these stocks go back up, and many of them will, your child’s wealth building process will already be established. The people who elect to wait on the sidelines until they see the stock market rebound before they choose to buy stocks are often too late in the game. In those situations, they are purchasing stocks at a higher price, and when you do, your wealth doesn’t grow nearly as fast as those who bought stock when the prices were lower.
- For everyone, it’s always best to set aside some money to capitalize on stock market opportunities like we are going through. It’s in times like this when wealth has its greatest chance to grow quickly, and if you invest at these optimal times, you are setting you and your family up to be very financially comfortable down the road.
To share a personal story to highlight this point, I recall several employees of mine from my former company told me that they were buying AOL (formerly American Online) every month. They were doing so because they believed that the online technology would be a big hit. The stock started out at a high price when it first came to the market and then the price dropped very low for a period. Although others advised them to sell this stock, they kept on buying shares on a monthly basis.
A few years later, AOL and Time Warner Incorporated merged and that investment of consistently buying shares while the stock was low paid off handsomely for those individuals. I only wished that I had been as disciplined and followed their lead in doing the same. All three of those men retired early in life and now you know why.
In closing, a stock market downturn, like what we are currently experiencing, is terrible for people in my age group. It’s bad because the recovery time of our investment assets may take several years. Hence, I’m grateful that I live only on the first floor, so if I do jump out the window, I won’t be hurt too badly. On the other hand, if this continues, I’ll move to the basement. (smile)
However, the upside of this down stock market is fantastic for young people. You will be able to take advantage of this market by buying cheaper assets for your investment portfolio, which is one of the best ways to build wealth. So if you are young, keep buying as many of these low-priced stocks as you can. And if you are old like me, stay away from the windows.