The stock market has been very up and down the last few weeks, up 2% one day, down 2% the next. The overall effect has been approximately the last 6 months of gains have been lost and this leaves most of the market pretty flat for the year. So is it time to panic?
First of all what is panicking? In general most people would consider panicking to be a sell off of their assets thus protecting against any further drops, the problem of course is that there is no guarantee that the market will continue to drop. The theory is of course that you sell off near the top and then re buy at the bottom, and make a killing. Market timing is basically impossible to do though, even the professionals can’t do it, if they could i’m not sure they would be still working as financial managers, they would be on the beach in Barbados!
For those of us in the FIRE community, really all you can do is keep the course. We are in it for the long run, a 30% or 40% drop in the market shouldn’t affect us. We might have to pull back on a few expenses, but realistically it wouldn’t be a great set back. We pull a small amount out each month but not enough that a drop in the market will cause a problem. Also the money we do pull out comes from investments that are less stock heavy.
Currently we are in a 10 year bull run in the stock market, with the markets rising on average close to 10% a year since the financial crisis of 2008. It’s not unreasonable to expect a significant market drop soon. Historically 8-10 years is the norm for a bull market, followed by a year or two of bear market. Whether we are now in the start of bear market time will tell, but we will hold the course.
Diversification is the key here, there is no sense being heavily invested in one sector and then finding that sector is collapsing while overs are thriving.
Realistically we will not be touching any of our stock heavy investments for many years, so i’m unconcerned at present. We will just have to see what happens.