One trillion dollars went to Money Heaven on Wednesday. That’s the dollar value of the 966 point decline in the Wilshire 5000 total market index. There was no place to hide — especially in tech. The popular Dow Jones Industrial Average shed 836 points to close at 25, 598 — and the Nasdaq lost nearly 316 points.
Wednesday’s meltdown was followed by another 545 point drop in the DJIA on Thursday. That represents another $600 billion down the drain in the Wilshire 5000 total market index.
This column was sent by email to subscribers to my free newsletter after the close on Wednesday — and updated only to reflect the Dow close on Thursday.
It was the worst market rout since the Brexit scare of early February this year.
Those are HUGE numbers. But don’t let them paralyze you. Two facts to consider:
• After the sudden drop in February, 2018, the market roared on to new highs.
• We are still “only” down about 5 percent from market peaks.
And that leads to these questions: Will this time be like the last, and like the dips before in recent memory — scary, but (in hindsight) buying opportunities?
Or does today’s drop represent the start of a major market decline?
In hindsight, will you be sorry you didn’t sell within 5-10 percent of all time highs?
As regular readers know, I don’t try to call market tops and bottoms. Instead, I try to help you make sensible decisions — preferably not in the midst of a panic. For months I’ve been warning conservative investors, those nearing or in retirement, and others who are not in a position to sustain long-term losses to take some profits “off the table” after this record bull market. I was early in each of those warnings. Now it’s time for a reality check.
Hindsight is 20/20 as we all know. But you’re going to have to make this decision now — without the benefit of hindsight.
There is no decision that is immediately correct. But your decision must depend on your personal circumstances.
If you’re close to retirement and unable to keep investing regularly, thus taking advantage of lower stock prices, then think twice about how a major drop of 20 percent or more would impact your lifestyle.
If you’re still working with years to go until you start withdrawing from your retirement account, the smart bet has always been that America will keep growing and you will come out ahead in the long run — at least 20 years. After all, there has never been a 20 year period — going back one hundred years — when you would have lost money in a diversified portfolio of large company stocks, with dividends reinvested — even adjusted for inflation. (That’s according to the market historians at Ibbotson Research/Morningstar.)
But this isn’t all about logic or market history. It’s about YOUR money. Psychological studies show that it is much more painful for most people to face a loss of something of value that was in their grasp, than to imagine what might have been.
If watching your retirement fund melt away is going to give you a panic attack — or worse, a heart attack — then make the sensible choice now at what might be the start of a bear market.
There is no worse position than being paralyzed with fear and saddling yourself with recriminations. That’s the fodder for game shows that ask you “which suitcase” you want to pick to find the million dollars inside.
Tonight — right now, ask yourself: Will you feel worse if the market declines further and you have decided to ride it out. Or will you feel worse if you sell and the market rebounds and goes higher?
It’s your decision — and none of us –especially not the TV pundits — knows for sure what will happen next. Some will be bold — and will be proven right and brag about it in the future. Those who are wrong will rarely be held to account for their forecasts.
So here’s my Savage Truth advice in this situation. You don’t have to be ALL right or ALL wrong, all in or all out. If you’ve decided you’re simply too worried about your current stock market exposure, follow the old Wall Street adage:
Sell down to the sleeping point!
That’s the Savage Truth!