5 Questions

“If I ask you what’s the risk in investing, you would answer the risk of losing money. But there actually are two risks in investing: One is to lose money and the other is to miss opportunity. You can eliminate either one, but you can’t eliminate both at the same time. So the question is how you’re going to position yourself versus these two risks: straight down the middle, more aggressive or more defensive.” – Howard Marks

There have been some big down days in the stock market in the past few weeks, reminding investors that stocks can go down as well as up.  It’s funny that the opposite was true just 5 short years ago.

Every time the market starts to show increased volatility people start asking questions.

What now?  Is this the start of a crash?  Should I get out now?  That pundit on TV says it’s time to sell stocks and buy gold?

This line of thinking will be of no help to your life goals that you are trying to fund through your investments.  So here are five questions to ask yourself when stocks start to fluctuate in a way that’s not to your liking:

  1. Does this change my time horizon?
  2. Does this change my tolerance for risk?
  3. Have I rebalanced my portfolio in the past year?
  4. Have my personal circumstances changed?
  5. Does the next 5, 10 or 20% in the market really impact my life?

Also, remember that the S&P 500 is only down a little more than 3% from an all-time high.  The sky isn’t exactly falling.  But when it does, and it will, ask yourself these same questions again.

I wish knew exactly when stocks are actually going to crash, but since no one knows when or why this will happen, plan ahead for how you will react when we see the inevitable fall.

Investing is more about your reactions than your actions.


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