The Dow, S&P, and pretty much every major index have dropped approximately 6 percentage points in two business days. Do you need to take action? Here’s how to think about it with data, charts, and mentions of cake.
It’s been an exciting few days in the stock market. By exciting, I mean terrifying and a little like contracting the stomach flu – painful and engendering hopes that it will pass soon with as little damage as possible.
Nearly everyone I know is talking about the 6% plunge we’ve seen in the past two days. It can be terrifying to watch your hard-earned nest egg shrink by thousands of dollars overnight, thousands that might take you months or years to “earn back.” The natural question I’ve been hearing from folks is, “Do I cut my losses? Do I sell?”
My answer is no. And I’d like to show you why as well as suggest a more productive set of actions for your time.
In times of unrest, the single most helpful thing you can do is go back to your investment thesis and take comfort in reviewing whether everything still holds. As an institutional investor, this is first line mental defense #1. For those who’ve read through the investing archives of the blog, you already know my thesis for investing in the stock market is a long-term play based on performance data specifically over long-term ranges (read: 10+ years). You can read a more fulsome outline of why I think low cost index funds are one of the highest performing bets you can make, but here’s the gist of