Finally, you have got your financial house in order. You worked hard to pay off your debt, cut frivolous spending and started to invest. Your 401K is taking full advantage of any employer match and you are even maxing out your Roth IRA. It feels good to finally have a healthy relationship with money and headed in the right direction financially. Your confidence in your financial plan is at an all time high.
Then the market begins to drop. Not fast at first, but just a consistent trend in the wrong direction. Before you know it, your nest egg that you have been working so diligently to build, is beginning to deflate. Gains that have been earned are now slowly slipping away. You are checking your 401K balance daily with sweaty hands and one eye open.
Do NOT Panic! It may feel like a gut shot to see such hard work stripped away in such a short period of time.
The truth is that if you invest in the market for any extended period of time, you will experience market rises and falls. To ride the highs of the bull market, you will inevitably feel the sting of a correction or bear market.
Drops however, are not all bad. Bear markets present some great opportunity. Here are some takeaways that may help with the stress of a correction.
Some people look at a down market as an opportunity to buy stocks on sale. Instead of following the flow and clamming up, they push some additional chips in the pot. A down market is a great time to pick up additional stocks at a discount. Throwing some extra funds at a couple of blue chip stocks while they are down is a good way to capitalize on the downturn. Even better, take a shot at the entire market with a total market index fund such as VTSAX. Buy a piece of the entire market on the cheap and reap the rewards when the market rises.
As a whole, the investing population trends to sell their assets when the market is down to avoid any further losses. This is where we can cash in. In a down market, it may be worth while to take a look at some real estate. Real Estate, when purchased as an investment, can really speed up your financial freedom dreams. It is fairly versatile as an investment in that it can create earnings in a few different ways, rental income, appreciation and also depreciation as a tax right off. If the economy is stressed, you may be able to get your hands on some investment real estate for a good price. A solid investment property can produce rental income monthly while having someone else pay down your mortgage… it is a beautiful thing no matter what state the stock market is in.
Buying real estate correctly is the key. You need to make your money on the buy. This means knowing your target area where you are looking to invest. Knowing the rents in the area, the schools, the type of renters the area will attract and how the area is trending are all things that need to be considered. Buying an income property can be amazing as an investment or a nightmare if you don’t know and understand what you are getting yourself into. If this has piqued your interest I suggest heading over to www.biggerpockets.com, as they are a wealth of knowledge on real estate investing and have a great community to set you on the right path as well as a very informative podcast.
Lastly, it is important to NOT get scared and sell your investments. Selling at the bottom of the market is going to almost guarantee a loss. It may feel like a crazy waste of money but just ride the wave and put down the Wall Street Journal or shut off CNBC. That is just hysterical noise that can spook you into doing something foolish.
Stay the course and if the market gets a bit too volatile for your taste it is okay to take a break and just add to your savings. You may also want to take a look at investing in the bond market as well to help smooth the ride.
You will be okay… breath and keep that investment petal to the metal.