The stock market was down about 2% yesterday and, believe it or not there was a headline – “The Stock Market is Having its Worst Second Quarter Since the Great Depression”. The quarter literally started yesterday. This is the type of negative and doom and gloom type stuff you’re going to see. It’s no wonder that people get nervous about things.
Put these market slumps in perspective. It’s normal and it’s expected. It’s the price that we pay, as investors in the stock market, for returns that have historically been better than returns that we can get anywhere else. It’s just the price of admission if you will. It shouldn’t be a surprise that the market goes down. I saw a great Tweet today by Morgan Housel – “About once a year people forget that the market falls 10% about once a year.” So true.
In fact, look at it another way – today is April 3rd. Depending on when you get paid, whether you get paid twice a month, once a month – if you get paid the 15th and 31st or 15th and 1st, your 401(k) contribution probably went in within the last couple days. You’re buying shares in your 401(k) that are about 10% cheaper than they were back at the end of January.
So what does that mean in dollars and cents? If you bought a share for $10 a share back then, today it’s on sale for $9 a share. That means if you put in $100 back at the end of January, you would have received 10 shares of that investment for $10 a share. Today when that money goes in you’re receiving 11 and some fractional shares. So you’re receiving at least one extra share for the same amount of money.
It’s on sale. Normally, we enjoy sales. For some reason, in the stock market, we get upset about it.
Don’t get deterred by the headlines. As we know, these downturns are temporary and they’re necessary. We just need to exercise patience and discipline and keep our eye on the long term.