It's been a wild week for stocks, and there was a point in my life when that would've caused me to lose serious sleep. Not anymore, though.
Frankly, at this point, I've been investing for so many years that I'm no stranger to periods of stock market unrest, or even full-blown crashes. But here are some other reasons why I'm not at all nervous over the idea of prolonged volatility -- or even a bear market that lasts months.
1. Volatility is normal
When you're new to investing, the idea of stock values dropping substantially can be extremely worrisome. But when you dig into the stock market's history, you'll see that volatility is actually quite commonplace.
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The S&P 500 index (which consists of the 500 largest publicly traded companies and is considered an accurate measure of the broad market's performance) has been through 26 bear markets -- periods where it's lost 20% of its value or more -- since 1928. The good news? It's managed to recover from each and every one. That alone gives me peace of mind despite the mildly unsettling experience of seeing my portfolio value decline temporarily.
2. I'm not planning to sell anytime soon
The only way to lose money in the stock market is to sell investments at a loss. But if you sit tight and ride out periods of volatility, you may not lose so much as a dime. A big reason why I force myself not to check my portfolio frequently -- and especially not during market downturns -- is that I don't want to put myself in a position where I get spooked and make rash decisions, like unloading stocks with the potential to recover.
In fact, my general investing strategy is to load up on quality stocks and hold them for many decades. Since I have no plans to sell any of my investments in the near term, and I think every stock I own has the potential to recover from a downturn, I don't have to be nervous about permanent losses.
3. I'm strong in the savings department
My plan to not liquidate investments when they're down? Part of the reason it works is that I also happen to have a solid emergency fund -- one with enough money to cover about a year's worth of living expenses.
Now some people will say that's way too aggressive an emergency fund to have, and the reality is that for many people, three to six months' worth of bills is perfectly reasonable and appropriate. I have my own logic for having a larger emergency fund, and part of it is that I know it'll buy me the opportunity to leave my portfolio alone during periods of volatility.
Sometimes, a volatile week in the stock market is just that -- a temporary blip. In other cases, it can be the beginning of a prolonged sell-off that ultimately leads to a correction or full-blown crash. But no matter what comes to be in the near term, I'm not worried about it. And if you take a similar approach to investing, you, too, can sleep better at night when stock market volatility rears its ugly head.
