It doesn’t take a financial expert to know that a one-day stock market drop of 5.5% will cause a hefty blow to our retirement and investment accounts. No matter how many times we’ve seen the stock market toy with our emotions, the idea of watching our hard earned money disappear slightly in a matter of days is uneasy for anyone.
The August Dip that we just saw this weekend stemmed from the S&P’s announcement that it was reducing the US credit rating from AAA to AA+ because the ‘medium-term’ debt situation was still unstable while the ability to increase the revenue from taxpayers seemed unlikely. If your debt is too high and income is too low, your creditworthiness is likely to drop. It’s that simple.
How to recover from the August Dip?
I like what Jeff Rose had to say in his video (found here). He basically asks this one question:
Have your goals changed since last week? Beautifully put, in my opinion.
I’ve spoken with too many people who have made decisions to sell or buy investments based on their emotions and reactions to what is happening in the market. Is it disheartening to watch your retirement account lose thousands of dollars in a day? Sure it is. But remember, you really haven’t realized the loss until you’ve sold out.
Will the market continue to drop? I don’t know (if I did know, I’d be a very rich man right now). What I do know is that my goals haven’t changed with respect to saving as much as I can for the future and investing in well-diversified index mutual funds.
So have your retirement goals changed since last week? If so, do as Jeff suggested and visit with your financial planner to discuss how to rationally approach your investments. If your goals haven’t changed, don’t freak out. (As always, please consult our disclosure statement if you have any questions about the opinions and thoughts shared on Faith and Finance.)