Scary World: Scary Markets

We live in a scary world chock full of dangers. The financial markets aren’t immune and are certainly scary at times.

The way you perceive the world around you influences how you prepare financially for the future. You have to be careful not to let the media hijack how you think and how you invest.

WHY YOUR PURPOSE AND PERSPECTIVE MATTER

The antidote for the scary world and scary markets is to detox yourself from the media. Their perspective doesn’t matter – only your purpose and your goals matter.

The past 22 months have been a workshop in just how “ginned up” the media can be and how they tend to make scary things downright apocalyptic. 

We’ve seen this movie before – we’ve had health scares, economic shocks, and market meltdowns. Yet, somehow the sun rose again.

Think about the scary times we have experienced over the past couple decades: 

  • 2002 – West Nile Virus
  • 2007 – Global financial crisis
  • 2009 – Swine flu
  • 2014 – Ebola
  • 2020 – Covid

Scary times should be expected – they should be part of your financial plan because they reflect reality. The big question is what can you do about the scary world and scary markets?

HOW TO CONQUER SCARY MARKETS

The answer to this question starts by acknowledging that your money and your feelings are closely interconnected. The feelings of fear you get when markets are scary amplify concerns about the future. You worry about your ability to retire, how you will help your kids or grand-kids with education expenses, and if you’ll be able to pay your house mortgage. 

The next step is to remember what’s most important to you and why you are investing in the first place. It’s easy to forget this in the fury of the short-term. Have your major long-term goals changed? If not, keep the faith and stay with your plan. 

Finally, become a student of market history. You can easily look at almost a century of stock market data and see quite a few scary times followed by even more prosperous times. Over long swaths of time, the market is positive about 3 times as often as it is negative. The sheer weight of market history is compelling. 

In the 75 years since the end of WWII the broad stock market has experienced 16 selloffs of 20% or more. That’s about once every 4-5 years. Scary markets have happened in the past and will happen in the future. Plan that way. 

Surviving scary market times is the price of admission for the positive long-term returns the broad market renders. The key is to understand that this admission price is paid today for the promise of tomorrow – that’s what’s difficult when the markets are scary. 

Ultimately, most scary things are beyond your control. Decide which things you can influence and those that you can’t. Start there.

Related: Is Investing Risky?