Whenever there's even the slightest dip in the market, the media loves to make a big fuss about it. They'll repeat statistics and index drops and so forth, creating an air of panic over what amounts to an insignificant blip on the radar in the grand scheme of things. Why do they do this? With the influx of reality TV and the 24/7 news cycle, I believe so many of us have almost become programmed to follow the drama in any situation.
The reality of the matter is that even large downturns don't have to be huge negatives, regardless of what the media would have you believe. In fact, with the right mindset and proper plan, the market's loss could mean our substantial gain. It all depends on your portfolio, your risk tolerance and your long-term plan.
Let's talk about where opportunity in the market comes from.
A Matter of Perspective
To begin I'd like to note that investing, much like the rest of life, is a matter of perspective. Think about this: If every day were 75 degrees and sunny, how would you know your good days from the bad? Without struggles and setbacks, our happiest triumphs would hold little meaning for us. I firmly believe it's the tough times in our lives that provide opportunities for personal growth. Without those opportunities, life would be very boring and stagnant indeed.
However, some people don't have the perspective necessary to realize these setbacks and obstacles are actually opportunities. They come up against tough times only to give up and say, "It's too hard!" These people fail to grow and learn from their experiences.
Ultimately, whether you grow or give up is a matter of how you view these experiences; it's all a matter of perspective.
Investing is no different. When it comes to setbacks in the market, you could, of course, panic, sell everything, and do irreparable harm to your portfolio. Or, you could view it as an opportunity to find mispriced stocks and funds to add to your portfolio.
If you have the patience and the timeline to wait out the downturn, times like these provide can provide the largest opportunity for savvy investors to accumulate wealth.
The Best Time to Build
Our stocks aren't 24-hour investments. When the market goes sour, it usually shouldn't trigger our impulse to turn and run. Instead, it helps to keep a long-term and historical perspective. To quote Warren Buffet,
"If you won't invest in a stock for 10 years, don't invest in it for 10 minutes."
Take the downturn in 2008, for example. While many people certainly faced some financial setbacks and difficult times, savvy investors also realized it wasn't the time to cut and run. Those who saw the time period as an opportunity to buy stocks at a discount are today reaping the rewards of those decisions. And while past performance is certainly not indicative of future returns, the lessons from 2008 are useful for keeping that necessary perspective when it comes to opportunity in the marketplace. Downturns allow us the opportunity to add incorrectly priced stocks to our portfolio; the drop in certain stocks often mean greater returns 10, 15 or 20 years down the line.
Where the Sidewalk Leads You
The truth is downturns are going to occur again in the market, and some people, despite the warnings, will want to give in to their emotional instincts. As an advisor, a big part of my responsibilities lies in keeping people looking at where the sidewalk takes them, rather than becoming overly focused on the small cracks in the pavement. Keeping the proper perspective on what investing in the market is really all about is key to keeping yourself squarely on the path to prosperity.
Remember, without the clouds, you wouldn't appreciate the sunshine nearly as much.
John Lindsey is President and CEO of Lindsey & Lindsey Wealth Management. After years of experience in executive leadership and finance, John founded Lindsey & Lindsey Wealth Management in 2012 to better serve his client base with an expanded universe of investment offerings. His biggest piece of advice is to always stay true to yourself and never compromise when that compromise would endanger your principles.