The sky is falling! Last week, British citizens unexpectedly voted to leave the European Union. The stock market tumbled. Is it time to get out?
When my husband and I started managing his mother's investments—back in the nineties—she would call us every time some big news event caused the stock market to go down. "Did I lose all my money today?" she'd ask. "Should I take out whatever is left?"
The answer was usually the same, "Not unless you want to lock in your losses." Eventually, she learned to keep calm and trust us to help her stay the course.
Investing in equities involves risk. The market is not the best place to stash money you may need right away. Stock prices rise and fall. Sometimes for no reason, or not even the right reasons. If you panic and pull your money out every time the market slides, maybe you should re-evaluate your tolerance for risk. No use giving yourself a heart attack.
Successful investors make decisions based on facts and fundamentals, not emotions. But even if you can control your own emotions, you can't control those of others. Even when all of your research says you have made a sound investment, your holdings could still plunge. Crowd hysteria is a wild card.
If you've spoken to your financial advisor lately—unless you're with an opportunist looking for any excuse to generate commissions—most likely the advice was to take a deep breath, wait until the dust settles, and keep following a sensible path of diversification and age/risk-appropriate asset allocation.
That doesn't mean you shouldn't pay attention. If you find you're overweight in securities likely to be adversely affected by the economic changes, maybe it's time to unwind or reduce your position. Or maybe there's a stock you've had your eye on, and, assuming the fundamentals are still good, a price dip will enable you to snap it up on sale.
The stock market is a roller coaster. But up or down, the rewards can be great for those who can keep emotions in check and look for opportunities.
What does "Brexit" mean to you? I would love to hear your comments.