What is a market crash? It’s a sudden, dramatic decline in the market. As an investor coach and wealth strategist, I find myself always preparing my clients for the crash to come. However, this does not come from a lack of faith in the stock market; in fact, I believe it’s the greatest wealth producing entity known to man!
The science proves that the market cannot be predicted and that it’s RANDOM. All available information is already figured in to the market, only new and unknowable information changes the pricing. The academics refer to this as a two thirds bias. One out of every three years is down; two out of every three years is up. Historically we never know which year is going to be up which year is going to be down.
From 1926-2013, over 88 years:
The S&P 500 was up 64 years averaging a 21.67% return, and down 24 years averaging a -13.61% return. Going through these economic turbulent times is never pleasant, but unfortunately it is part of the recipe.
In our firm’s experience, the CRASH is really not the problem? We know long-term the market has been an incredible wealth producing tool. The problem is really the investors’ reaction! The highs are high because the lows are low. This investor dilemma would not be as difficult to coach people through if it was not magnified by the media’s and the financial industry’s hyping scenarios. You see, a crash becomes a double edged sword for the industry. On one side market values are going down, but on the other side transactions are going up. This becomes a huge profit center for the industry and substantial revenue is created by the volume of transactions.
This brings me to the sleep factor and how to prepare for the next potential market crash. Let’s start out by understanding that it is very important for you to know, in a down market environment, what your portfolio mix could lose. This is quantifiable, it’s scientific, and it can be communicated to you in the form of a percentage. By understanding this number, one can actually develop peace of mind over their investment strategy. Coaching will help you avoid this investor dilemma by understanding too much greed or too much panic are your own worst enemies when it comes to investing. You may be saying, “Okay fine, and then what does one do?”
Allow me to offer six steps that will enable you to find peace of mind over your investments:
1. Diversify across the entire global marketplace. Remember umbrellas and suntan lotion, dissimilar price movement is the key.
2. Rebalance religiously and lock in those gains along the way.
3. Conquer your money demons, crashes happen and no one knows what’s going to happen in the market moving forward? Get some coaching!
4. Prepare mentally through regular coaching events, when offered. (If not offered find a coach and ditch the salesperson, the transactional guru, the enabler. Get some coaching; you are absolutely paying for it in some capacity.)
5. Invest for the long-term. The returns come from the market, not from managers. What’s your sleep factor?
6. Consider the market taking a downward turn and visualize how you might handle that with your current sleep factor. Does an adjustment need to be made? If you are not sure, sounding like a broken record here, Get a Coach!!
Please do not be mentally blindsided when the inevitable does come to pass and the market takes a downward turn. Prepare yourself now. Reacting, as most people do, in a panic creates undue burden and costs investors billions, sometimes trillions with locked in losses. If you’re not sure about your sleep factor maybe it’s time for some coaching. Give the office a call and let’s set up a time to create some mental armor for the future onslaught on hype and doom! If you have never received real coaching, what are you waiting for?