Seeing the greatest single-day point drop in the Dow is probably not the kind of history anyone wants to be living through right now. The failure of the bailout bill to pass caused a big freakout in the market, which thought we were going to get a bailout today. But before you click the button to transfer all your investments to 0% return T-bonds (aka I give up on investing), first ask yourself if that’s really in line with your long-term investment goals. Secondly, realize that point-wise it might the greatest drop, but it’s not the greatest drop percentage-wise. In other words, we’ve been here, and bounced back, before. If you’re decades away from retirement, today’s plunge is a buying opportunity. Here are some thoughts about fighting the urge to panic.
If you’re older, you can make sure your investment mix is balanced and in-line with your investment plan. For instance, this easy calculator from the Iowa Public Employees Retirement System can you give you some ideas. Just adjust the sliders to correspond with your age, income requirements, etc, though it is of course only a starting point in your research. A recent Vanguard article on the importance of asset allocation is another good place to begin.
The one thing that you can do, regardless of age, if you’re investing in any kind of fund is make sure your expense ratios are low. These are the various fees your fund is charging you to invest it. Typically index funds offer the lowest expense ratios. Expense ratios work like the fund earning compound interest on your money, which, after years, can add up to tens of thousands of dollars less in your pocket. (see our post “What Are “Expense Ratios?” and “How Your 401(k) Is Ripping You Off“
If this sounds like the same stuff you always hear, that’s because it is. The point of that same old stuff is that you make a solid long-term plan and you stick with it, whether times are good, bad, or apocalyptic. Now, as ever, timing the market is unwise. Dollar-cost-averaging, where you put the same amount every month, is a good way to go. In general, and over time, the stock market rises. And, eventually, Washington will figure out a bailout plan.