Be ready for Black MondayWritten by Nolan Baker Mark Clair | | firstname.lastname@example.org
Looking back at my short 34 years, several moments in time stand out that I can remember like they were yesterday. Most of those memories are wonderful experiences that I often think about. Just this week, I came across a video my wife took of my oldest son rolling over for the first time. My grandfather sent me a newspaper clipping this week from when I was a child at the fair and won a bunch of Scooby Doo stuffed animals. Other times there are negative memories that come to mind. One memory in particular was the October stock market crash of 1987, known as Black Monday.
On that Monday morning, I was riding with my dad in our blue Chevy Astro van heading to Defiance. My dad had always been a fan of talk radio and that day he was glued to the AM dial. It wasn’t until a year later that Dad sat me down and started teaching me about investing in the stock market, so I was just annoyed I couldn’t play my new Bon Jovi cassette tape. I remember seeing the concern on my dad’s face as he listened to the stock market collapse By the end of the day, the Dow Jones had dropped 22.61 percent, its biggest one-day percentage decline in history. To my dad, that day seemed like a financial disaster.
Twenty-three years later, looking back at that moment, I should have just pushed in the cassette tape and Bon Jovi’s song “Livin’ on a Prayer” might have made him relax a bit. As the Retirement Guys, we realize the impact losing money can have on retirees. It could mean outliving their income and potentially running out of money. We meet with people all of the time, some are worried about the stock market and others are focused on what’s really important to them. If you are concerned about the stock market and the economy, we’d like to share a couple of simple steps with you so when the next crash happens, you too can just turn up the music and get back to enjoying the ride.
Step one: Have a certain amount of safe money. Not only does it make sense for investors to be safer when they get older, it can also buy them time, time not to panic. If investors have an account not exposed to stock market risk, they can take withdrawals from the safe account while the stock market is down, giving the stock market accounts time to recover. For many investors who pulled their money out of the stock market after the 87 crash, they missed out on the gains in the stock market in the next decade to come. Once the crash happens, it could be too late to become safe.
Step two: Don’t follow the crowd. Driving to an appointment this week, I went past a clothing store that had a sign in the window that said, “We Buy Gold.” For me, that is a pretty clear sign that now isn’t the time for us to advise our clients to buy a bunch of gold investments. History has shown time and time again, the stock market and the economy can be very punishing to people who chase the hot trends. Remember technology stocks? How about how easy it was to make money in real estate? Just the same, allowing emotions to get in the way and selling out after a large loss may not make sense either. Instead, ignore everyone else and make decisions only after reviewing a well thought out plan of action.
Step three: Put money to work when something is super cheap. If investors take steps while things are going good to increase safe accounts, they can buy opportunities when things are bad. Look for companies that are leaders in their industry and ones that stand out above the crowd. Believe in America and buy quality investments that should be able to weather the storm.
Taking these three steps may not make you the next Warren Buffett, but many of these principles are ones he follows. If you feel that you are not in control of your investments, but are happy to see your account statements have gone back up, then now might be a good time, while prices are much higher than they were a few years ago, to get back in control before the next Black Monday occurs. Remember it is when, not if. Don’t take a backseat to financial planning when everything seems to be going well.
For more information about The Retirement Guys, tune in every Saturday at 1 p.m. on 1370 WSPD or visit www.retirementguysradio.com. Securities are offered through NEXT Financial Group Inc., Member FINRA / SIPC. NEXT Financial Group Inc. nor its representatives provide tax advice. The Retirement Guys are not an affiliate of NEXT Financial Group. The office is at 1700 Woodlands Drive, Suite 100, Maumee, OH 43537.