The Stock Market Melted, Now What?

Well that was interesting.  I generally ignore the stock markets most of the time except for my monthly net worth posts where I login to my accounts and check the balances.  Yet even the current media coverage on the stock market decline managed to pierce my fog of ignorance a bit earlier in the month than I’m used to.  So yes, the TSX index is down like 10% or more from its recent peak.

First off, I don’t panic. In fact, I go back to my previous notes about my emergency plans and what the trigger is.  You know that plan you wrote down when things were going well and you were calm and rational…unlike now where your mind seems to be moving like a squirrel on a double espresso.  And there is black and write is my trigger point which is 10% decline in our portfolio, so while my TSX index is down over 10% I will need to check if my portfolio is down that far yet.  Given my bonds I doubt that the damage will be that bad but I will confirm that tomorrow.

Yet the timing of this does suck.  I was supposed to be re-balancing my portfolio next week and selling some investments to provide cash for next year.  So what do I do?  Well looking at my emergency plan the answer is simple: nothing.

Pardon?!? Yep, the answer is I’m doing nothing.  I’ll just sit back and wait until the US mid-term elections are done and the world just calms down a bit.  In the meanwhile I still have lots of cash in my savings account to live on in the short term and that gives me time to push off pulling money out of my investments until later on in November.  Of course the delay is more psychological than real as I will be pulling money out the bond part of my RRSP.  What I’m really delaying is the re-balancing of my RRSP accounts as I don’t want to re-balance to a stock market blip that will put my off my planned percentage split of investments five minutes after I finish the transactions.

So I might be “missing a buying opportunity” or “trying to time the market” by delaying my re-balancing but the fact is I wrote out a plan back when I was much more calm which said this: when your portfolio goes down 10% or more than you trigger the emergency plan.  Don’t sell investments.  Sit down, take a deep breath. Cut back on optional expenses (if you feel the need to do ‘something’).  Use your slush fund to pay expenses in the short term (if required).  Keep the long view and consider your options: perhaps pick up some part time work or a contract position and consider using debt as a medium term measure if the decline goes on a for an extended period of time.  Keep in mind, you are in this for the long run so don’t do anything stupid in the short term.  Sit on your hands if you have to but DO NOT touch that ‘sell’ button.

See “rational past me” knows “stupid panic current me” very well and wrote out just what I needed to hear: don’t do anything.  Sit tight and if you need to do something work on something to give you some income or perhaps look at your spending in the short term to give yourself a sense of control in a chaotic time.

That is the real value of writing out an investment plan.  It doesn’t have to be long or complex but it should be your ‘go to’ document when things hit the fan and you don’t know what to do.    So what does your investment plan say to do right now?  Or how are you reacting or not to this stock market decline?

14 thoughts on “The Stock Market Melted, Now What?”

  1. All the recent market decline did to my portfolio was to move me a few points within my acceptable AA range. This means I won’t do anything; no need to rebalance.

    Most of my rebalancing moves are within my IRA which I won’t be able to tap into for another 4 years. In my taxable account, I will be getting some cash via a stock fund’s cap gains distribution at the end of the year which I plan to split up among a few things, some of which I know and some I don’t know yet. In January, I’ll decide what to do with the rest of the large cash inflow. By then, the midterms will be over, as will the holidays, so things should have settled down by then.

  2. I have plenty of cash, in the near term. I will draw more when markets are up in the new year. If needed, I have a HELOC available. Don’t ever panic. Remember bears and pigs get slaughtered. Be calm.

  3. Stocks are down? think of it this way, they are on sale now. Black Friday and Boxing Day came earlier this year.

    Here’s another way to look at buying and selling stocks. Like Tim, I am also a retired engineer so I view many things in life with an engineering perspective and believe you should invest like a governor. When the speed drops the governor senses the drop and opens up the throttle so the engine gets more fuel/air mixture. This greater mixture burns with more explosive force driving the pistons down during the power stroke, creating more torque and power to pull the speed back up. Similarly, if the speed gets going too fast it closes the throttle to cut the power. So when stock values drop you act like the governor and buy more. If stocks get high, like the governor you sell some off and reduce your exposure. Yes, it’s really that simple. I’ve taken advantage of the recent sales to buy more stocks and ETFs.

  4. A friend warned me that I was making a mistake of not bailing out of the market like he did last week while I chose to do nothing. He said that I am acting like a ‘deer caught in the headlights’ standing still and will end up getting run over. He chose to take a $25,000 loss thinking that he is avoiding a greater loss down the road. He is convinced a repeat of the recession of 2008 is happening and that it will be worse and longer. I sure hope he is wrong.

  5. I am in 40% fixed income (ZAG.to) and it did not go down nearly as much as the stock indexes did last week. The bonds did exactly what they are supposed to do, which is to provide portfolio stability. What I did do is just rebalanced last week, buying stocks on sale with some of the bond etc shares I sold….

    The market goes relentlessly up most of the time though-out history, corrections and bumps are common. Stay the course.

    Here’s what Jack Bogle, the founder of Vanguard the world’s largest index fund company has to say about market movement.
    https://www.youtube.com/watch?v=KZWX38OG9iE

  6. Everyone’s situation is different. My situation is I won’t retire for 20+ years so I’m not worried if the market keeps going down, just stay calm and keep on getting additional shares.

  7. If anyone has been watching the markets they’ve made a strong rally today, Nov. 6. I’ve sold off some stocks I bought on margin during the recent dip and made some nice gains. Further to my above comment, the governor responded to the increase in speed by closing the throttle to cut the power output. Buy low, sell high.

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