Why I Am Happy the Market Dropped Today
I am not a short seller, but here is why I was happy I saw that the market was down today.
When I woke up this morning and saw bitcoin had dropped below $30000 for the first time since January, I started panicking just like I am sure most everyone else did. I then checked the stock market indications and saw everything was going to open quite a bit lower. I started to ask myself, is it time for me to sell? Do I let my emotions take over and go against everything I believe?
I took a deep breath, grabbed my bottle of water, and proceeded to do my morning workout. My morning ritual always includes having CNBC on the TV even though I can never hear it over the concert in my ears coming from my Peloton workout. I like to peak up occasionally, to wipe away the sweat and to look at the daily volatility in the market. This is my reminder of why I do not try to actively trade markets.
Today’s endurance ride was perfect for my anxiety. Instead of panic selling which leads to definite losses in your portfolio, I was able to clear my mind and realize these drops in the market are exactly what us long term investors want to happen.
In my recent article, How to Become a Millionaire Making $19 Per Hour, I noted that to take advantages of market drops such as the one today, we need to split our total monthly contributions into at least 2 deposits monthly as opposed to one lump sum every month. This gives us the opportunity to take advantage of days like today. After all, we are investing for much further down the road. We do not need these funds tomorrow. Therefore, what happens in the market today or tomorrow for that matter have no bearing on the outcome of our portfolio in 15 to 20 years. It is the accumulation and appreciation over a longer time period that is going to help us achieve our financial goal. This is the reason we have a budget and our other current income to cover our budget that we set for ourselves to meet our investment goals. Look at the daily chart below for the S&P 500 for just the past 10 years:
Could you imagine selling every time you saw a decent sized drop in the market? You would miss out on some the bigger gains that often follow within a few days. This would significantly cut into the 8–10% annual gains we have come to expect over longer periods of time. Therefore, I strongly suggest investing in a total stock market ETF or a low-cost S&P 500 fund. It takes the anxiety of trying to guess the hottest stocks or the next hot cryptocurrency which can lead to panic selling like today.
So, for today, we will just let the market traders sell some of their big gainers to cover their margin calls. They are doing us long term investors a huge favor by putting the market on sale for us. Who does not love to buy things at a discount? I know I certainly did today.
