10 Things You Should Really Do When The Market Goes Haywire

Ten Things You SHould Do When The Market Goes Haywire

Lately the market has been on a bit of a roller coaster ride. Down, then up, then down again. People talk about buying “at the low”, and then the market goes down some more. So what should you really do if the market goes haywire?

Spoiler alert (in case you don’t have time to read the whole article) – The real answer is “Nothing you wouldn’t have otherwise done.”  But I’m going to give you ten solid tips for things you should have in place to help protect you from yourself when the market goes a bit crazy.

Today I’m going to share a bit about my personal experience with market ups and downs, talk about what you should do now, and give you those ten things you can do in preparation for future fluctuations.

Lets begin.

My History With Mr. Market

I’ve been an investor through two significant downturns now. First the dot-bomb of the early 2000’s, when I had only been investing for a few years. The dollar amount I lost was small, but the impact was huge. I remember coming home from work and school (working full time and going to school full time) and seeing the news drone on about yet another drop. Then the Great Recession of 2008/2009, when my husband lost his job as his factory closed, and all the news of the market was grim.

The late 90’s, when I started investing via my father’s teen IRA investment strategy, were an exuberant time. The markets were going up, and up, and up. Sure sometimes they would dip down, but they’d always go up again. Just check out these returns:

  • 1995 – 37.6%
  • 1996 – 23.1%
  • 1997 – 33.4%
  • 1998 – 28.6%
  • 1999 – 21.0%

I think it was 1997 when I opened that IRA, although it may have been 1996. My earliest experience was with a crazy up market, where it seemed like significant ups were the norm. As a teenager, I didn’t do too much digging into the history of the market, although I did hear rumblings about something in 1987 (what I would later learn was Black Monday) and the fact that some people my grandfather knew never recovered from the Great Depression.

But it was a new paradigm. Companies didn’t even need to make money to be worth money! There was this whole new industry called “technology” that was changing everything, including how stock markets work. Right?



As Benjamin Graham told us in The Intelligent Investor, the market is not a magic money-making machine that does nothing but go up and up. In the long run, it acts as a weighing machine, providing the most value to the most profitable companies. But in the short run, it’s a voting machine, subject to the whims and fancies of the crazy “Mr. Market“.

“In the short run, the market is a voting machine but in the long run, it is a weighing machine.”~ Benjamin Graham

I learned this lesson the hard way, and early. In that way I feel fortunate, because I learned this lesson back when I didn’t have much at all. In the year 2000 I was in community college, working full time in a call center, about a year away from being married. I had started a retirement account, and that IRA, but all in all probably had under $5k invested.

So while I may have lost what felt like a lot at the time, but it the lessons I took away from the experience would be worth more than what I lost.

After three years of negative returns, where I would regularly see my meager contributions swallowed by a down market, it started to turn up again. Then we got hit with 2008.

What I Learned

The years from 2000 until 2010 are commonly called the “lost decade” of investing, where the market ended essentially where it started. The habits I built during that time, learning to ignore the downs and continue investing no matter what, built a solid financial foundation for the time from 2010 and beyond. They also gave me the perspective to not really care about a single down year, or even several in a row.

You know that advice to not have money in the market that you might need in the next five years – advice people like to ignore when the market keeps going up?

And that advice to not invest your emergency fund, since the time you’re most likely to need it in case of a job loss is when the market will be down?

How about the fact that if you can’t stomach the risk of stock volatility, you need to offset some of the risk by having money in bonds, or in cash/cash equivalents?

The fact that you shouldn’t have too much of your financial future tied up in a single company – like many of my former coworkers did? In 2008 our company (my former company now) stock went from over $100 down below $4, and has never gone back anywhere near $100. Many of the people I worked with at the time had company stock in after-tax investments, vested stock, and in their 401k’s.

It’s all true.

It’s easy to ignore this advice in the heat of an up market, but if you’ve learned them by living them, you never forget.

What You Should Do

As I mentioned at the start of this article, you should ideally do nothing.

Don’t think that you can “call the bottom” and start buying like mad. The market isn’t really down that much right now. I see people buying all the time because they think the market has hit a new low, and then it goes lower.

Also don’t think that you need to get out right now and go to cash. There are people who went to cash during the Great Recession who are still waiting for the market to drop and get back in. And lots of folks who were burned by the market back when they started investing, or saw their parents burned, and never got in. Only about half of households own stocks at all. Those folks have missed the up market of the past ten years, which would have benefited them even if they didn’t have much invested.

“Be greedy when others are fearful, and fearful when others are greedy” ~ Warren Buffet

Others have been greedy recently, at least from what I’ve seen. It’s made me cautious. I’m not going to be able to call the top – none of us are, no matter what someone tells you. But when people start down the path of irrational exuberance, you should be cautious.

And when you hear everywhere that the sky is falling, and see people running for the hills, that’s when you should consider swooping in and becoming a buyer.

Are we at that point yet? Not from what I’ve seen. Yes, some people are starting to get nervous. I’m seeing that some folks are talking about changing their goals, and strategy. Some are getting concerned. But it’s no where near the all-out panic of prior down markets. If this continues, though, I’m certain we’ll see more panic.

Just because you shouldn’t do anything, doesn’t mean there’s nothing you can do. This is a perfect time to sit down and impartially evaluate how well prepared you are for the market ups and downs. So next I’ll talk about the preparations you should ideally already have in place for market fluctuations. If you’re missing any, now is a good time to shore those up.

10 Preparations For Market Fluctuations

Ideally, you’ve prepared yourself for market fluctuations before you ever started investing. But what if you didn’t? Or what if you thought you did, but you’re starting to become nervous now that you’re watching your net worth go in the wrong direction?

Here’s my top tips:

  1. Obey the five year rule. Don’t have money in the market you need within the next five years. That money should be more conservatively invested, in bonds or cash/cash equivalents (like CD’s). Will you earn a lot on this money? No. Risk is correlated with return. More risk, more return – but in the long term.
  2. Diversify. Diversification is underrated, especially when a single asset class is outperforming. In any given year, the best-performing asset classes are often not those of the prior year. Acquaint yourself with the asset class returns table, and make sure you’re appropriately diversified. This includes evaluating how much risk you have concentrated in a single stock – or in your employer.
  3. Evaluate your risk tolerance and risk capacity. I talked about this on Friday, but the amount of risk you can take is composed both of the amount of risk you’re willing to tolerate, and your ability to take on risk. If you’re approaching retirement, the first year of paying for college, expected time off due to job loss/maternity leave/caregiving for a relative/other – your capacity to take on risk may be reduced. You also may find you’re not as tolerant of risk as you thought.
  4. Have an investment policy statement. Don’t have one, or aren’t familiar with it? I’ve written about it before, have an example, and even a template you can print and use. This is a document you create when things are going well, that you can refer back to when the latest bubble arises (cough, bitcoin, cough) or when the market goes down. It’s an essential for the DIY investor that doesn’t have a financial adviser to lean on to be the rational voice in their ear when things go nuts. You should feel confident in your investment plan, which means you should have one.
  5. Don’t panic. It’s essential that you not panic. The market will go down. It will go up. It’ll also go sideways. You need to play the long game, and not pull your money in and out of the market. Attempting to time the market is what leads the typical investor to significantly under perform the market. In 2017 the average investor underperformed the index by almost 5%, according to Dalbar.
  6. Don’t jump in with both feet either. You can again refer back to that Dalbar study. Prior year studies show the same thing, people consistently under perform the index. Part of that is not just panicking and selling when you shouldn’t, but also getting in and buying when you shouldn’t. Just stick to your investment strategy, as outlined in step four (you do have that IPS, right?)
  7. Evaluate your financial foundation. Do you have the right insurance in place? Automobile, homeowners, umbrella, health, life, etc. etc.? Do you have a solid emergency fund with 3-6 months expenses (or more for some folks)? How about a clear idea of your financial goals, and a solid plan to get there? Make sure you have a solid foundation on your path to financial freedom. During an up market, it can be easy to ignore the basics and jump straight into investing, but that leaves you on shaky ground.
  8. Be an ostrich if you need to. I wrote earlier this year about my “ostrich strategy”, which is a fun visual for just ignoring your investments. Go out and live your life. Take the financial apps off your phone. Turn off Mint and Personal Capital email notifications. Unsubscribe from CNBC. Stop reading financial blogs (um, except this one?). Just go out and enjoy life, keeping your investments on autopilot. Come back in a few months, or a few years, and you’ll be pleasantly surprised on what’s happened while you’ve been gone.
  9. Don’t make goals that depend on factors outside your control. I see a lot of folks in the financial space making this mistake. If you’re in debt-payoff mode, where most of your money is going to pay off debt, then your net worth is almost entirely within your control. When you’re relatively new to investing, or if the bulk of your money is in savings accounts, your net worth is also highly controllable. But once you have a good amount invested, the fluctuations of the market can eat your contributions for breakfast. Keep your focus inside your locus of control.
  10. If you make a mistake, don’t beat yourself up (but don’t compound the error). We all make mistakes. No one is perfect. Say you panicked and went to cash, only to see the market march up. Instead of waiting for the market “to drop again” (which it might or might not), just get back in. Or you poured in a ton of money when the market dropped, assuming it was going to go up, and it’s just gone down. If you couldn’t afford to have that money invested, just put it back where it was. There’s no point in dwelling on past mistakes, because you can’t change them. You can only move forward, and do better once you know better.

I Want To Hear From You

What tips did I miss above? How are you feeling with the latest market fluctuations? Let me know in the comments!

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4 thoughts on “10 Things You Should Really Do When The Market Goes Haywire”

  1. Timely post. It is all well and good to take quizzes and surveys which tell you what your risk tolerance is, but man when the rubber meets the road, it’s a different story.

    Although the market dropped much more in the 2008-2009 crash, this smaller correction has caused me to lose more money than I had invested in total at that time. The numbers can be truly staggering as the equivalent of a luxury car (high end tesla in my case) vanished in a period of 2 wks with only a relatively small drop in the market.

    Mo money, mo problems rings true here. But I have to trust the system and continue marching on unfazed. History has shown that the general trend of the market is up and for the long term investor that’s what is important.

  2. melaniepartnersinfirecom

    Last year I made the mistake of making a net worth goal, but you’re right that’s way too dependent on markets. This year might goals will only be about debt repayment and cash holdings.

    I think one other thing people need to do to when the market starts going crazy is touching up their resumes and improving their job skills. We don’t know if a crazy market will lead to a recession, but we know a recession could mean job losses and its better to be prepared for the possibility.

  3. Yes I think the best thing is prepare for a market crash so you won’t have to do anything when it happens. Better to be proactive than to be reactive especially with the stock market.

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