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Dealing with the Emotions of a Volatile Stock Market

Recent volatility in the stock market has people reassessing their appetite for risk. Investing in a bull market is easy as it seems the only way equities go is up.

The recent bull market has an added way of lulling people into a false sense of security. Last year many indexes never saw even a 5% pullback even once. Some didn’t see a 3% decline at any point! This is a highly unusual situation confirming for some people the stock market doesn’t test your resolve as often as it does.

In the past week we’ve had a > 5% intraday swing in the market indexes. Many individual stocks had even greater moves!

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Stalking the Accountant: Into the Abyss

The Wealthy Accountant gave away money this week! On Wednesday I set the random number generator a spinning and in a nanosecond a subscriber was $100 richer.

Sara N of Buffalo, NY was our winner. I give a choice of a PayPal transfer or an Amazon gift card. Sara asked for the gift card and Amazon emailed the code straight to Sara. Congratulations, Sara! Thank you for subscribing.

If you didn’t win this drawing there are plenty more. The dates and terms are published on the Where Am I calendar. There are two drawings for three winners in February. I never recommend the lottery, but if you get a ticket for free, why not!

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Crying Over Spilled Milk or What to Do if You Missed the Stock Market Rally

Crying over spilled milk is an adage most of us first heard at a young age. Minor inconveniences are blown out of proportion when they happen. Eventually someone says you should stop crying over spilled milk

We’re living a spilled milk event as I write. The stock market and the economy have been growing steadily for about eight years now. Constant media covered convinced a large percentage of the population things were dire. We were scared shi+less and tucked our hard-earned money in the mattress. There was no way you would be tricked into investing in a bad economy.

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Buying Stock at a Discount

The easiest way to invest in equities is with a mutual fund. The surest way to match market performance is to use index funds. Then there are times we get the urge to do things the hard way.

Of all investment classes the broad market has performed best. The stock market, for all its fits and starts, has outperformed over long periods of time without the need or risks of leverage to accomplish the goal.

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Your Share of Passive Income

The biggest risk most people have when it come to building wealth is putting all their eggs in one basket. Having one full-time job supplying you with 100% of your income means you are either doing well or in a crisis.

Wealthy people and large corporations have multiple streams of income and continually work to develop more. Sometime the failures are huge. New Coke might be an example. In my practice I’ve had ideas cost serious money go down the toilet. I’ve also had spectacular successes.

Multiple streams of income are the only way to protect your wealth creation program. The same applies when you reach financial independence and decide to retire. All your eggs in one basket is a bad idea. Imagine busting your tail for a decade and having all your money in Enron.

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Problems with Owning Individual Stocks and Index Funds at the Same Time

When you begin your journey towards financial independence you can’t imagine some of the problems along the way. Investing starts out larger than life and scary until you see how simple index funds make investing in large successful companies is.

Before long you have a large nest egg in your 401(k) and IRAs. Eventually your savings rate starts building your non-qualified accounts (non-retirement) as well.

As your net worth reaches for the sky you have the latitude to try some alternative investing in a mad money account. You start reading books on super investors like Warren Buffet and Ben Graham and decide it is worth learning the process of buying outperforming individual stocks with a small portion of your portfolio. Besides, you might really have a feel for finding great underpriced companies to buy stock in.

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Nuclear War and Money

There is an old story on Wall Street about a young stock broker during the Cuban Missile Crisis. The world hung in the balance as President Kennedy came on television to inform the American people 50 Soviet cities were targeted by U.S. nuclear weapons if the Soviets attempted to run the blockade of Cuba.

Those who lived through it say it felt like the world would freeze. Tensions were high. Such threats under such an intense situation could only mean the Soviet Union targeted their nuclear weapons on U.S. cities as well. One misstep, one accident and the human race would end in the flash of an instant.

The stock market started to decline as fear grabbed Wall Street. The young broker started to scream, “Sell!” An old broker with over 40 years experience working next to him barely showed any concern. The old broker touched the young broker on the arm and shook his head. “Buy,” he said calmly.

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Stay the Course with Your Investments

There are two dangerous times in a retirement plan: when things are going really bad and when things are going really good. We have been lucky the last seven and a half years. The market has marched higher at a steady pace with nary a pullback to be seen. There are people in their 20s who have only seen the mildest of market corrections (a decline of 10% or more) and have never seen a bear market (a decline of greater than 20%).

The steady beat higher for so long is unusual. Regular investments have only known one direction: up. Money invested last year is worth more this year, same for the year before that, and so on. It is easy to invest in such an accommodating environment. The goal of early retirement looks so easy when every year is an up year.

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