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?