How I convince myself to relax when markets go south

[FIRE47]

With global markets entering a bear market and US equities not far behind I've found one train of thought that helps puts things into perspective for me.

Even in a very worst case things can only really reasonably continue to sell off at this rate for another 3-4 weeks for most markets unless we expect them to go to 0 which clearly isn't going to happen. Yea it would be bad but then we would have very high future expected returns for months or years of contributions afterwards. Could be worse.

I realize there may be some holes in this logic but realistically things aren't going to be worse than 2008. And at this rate we'd be there soon.

[WynnDuffy73]

That's a good way to think about it.  If you have many years until retirement you are going to be able to make new stock purchases at reasonable valuations.   I've been aggressively paying down my mortgage the past few years because the market felt like it had little upside(although I was still investing half my savings). 

Now when my 401k goes in every other Friday it just feels like a more sensible purchase. 

[AlmstRtrd]

While I don't disagree with your basic reasoning, I do wonder if you know or remember how bad the 2007-2009 bear market really was. See this link:

https://en.wikipedia.org/wiki/United_States_bear_market_of_2007%E2%80%9309

It takes a lot of belief in stocks to hang in there when a major index is down 54%. The worst case is not that stocks only go down for another 3-4 weeks. Not preaching the end of the world here but stock bears can be really nasty. Also, in retrospect we know that stocks came roaring back, but there was no assurance of that in early 2009.

[Mmm_Donuts]

It's hard not to panic when things seem to be in a free fall. I like your idea, OP.

I invested through the 2000s and remember what 2008-9 felt like. It really did feel like the end of the world, life as we knew it was over and the financial world was doomed. I was considering stocking up on beans and rice and other staples, and I am not even a doomer.

I'm certainly reminded of that experience now. But knowing that everything bounced back in a couple of years keeps me from panicking this time.

Another way to think about it -- this is what I do -- is to know that volatility is good. I remind myself that my portfolio is sinking because I have a high exposure to the things that have the most potential to go up. More downside = more potential upside. As long as you're not on margin or buying risky individual stocks that could potentially go to zero, then there's nothing to worry about!

[AlmstRtrd]

Another way to think about it -- this is what I do -- is to know that volatility is good.

For someone in the accumulation stage volatility is good (if the rough patch in the market doesn't also result in job loss). For someone who is retired or nearing retirement, it can be really tough psychologically. Let's also not forget the 2000-2002 three-year bear that whacked about 40% off the S&P.

Again, not selling end-of-the-world scenarios here. I just get the impression that there are many folks on here who haven't felt the extended pain an all-stock portfolio can inflict. If you are fine with taking large losses for three years straight, then being all in stocks if probably good. I'm just making the case that the worst case scenario is not another negative 3-4 weeks.

[Retire-Canada]

If you are investing for a 40yr+ timeframe with an investment plan you believe in you shouldn't be paying attention to the market on a day to day or week to week basis.

Monthly I use my savings additions to rebalance so I do get a check-in that frequently. 

If I had an automated service to add/rebalance that didn't cost anything to use I would check my investment balances once at the end of the year for tracking purposes.

If your plan is to buy and hold so to essentially do nothing between additions you should go on a low information diet when it comes to the market. That will help with the anxiety.

[Mmm_Donuts]

Another way to think about it -- this is what I do -- is to know that volatility is good.

For someone in the accumulation stage volatility is good (if the rough patch in the market doesn't also result in job loss). For someone who is retired or nearing retirement, it can be really tough psychologically. Let's also not forget the 2000-2002 three-year bear that whacked about 40% off the S&P.

Again, not selling end-of-the-world scenarios here. I just get the impression that there are many folks on here who haven't felt the extended pain an all-stock portfolio can inflict. If you are fine with taking large losses for three years straight, then being all in stocks if probably good. I'm just making the case that the worst case scenario is not another negative 3-4 weeks.

Very true. And we are semi retired, so really don't have tons of $ coming in to put back into the market.

The state of the current market is definitely a test for those who are gung ho on being 100% stocks. And the converse to what I said above, while everyone wants the upside that we've seen in the past 7 years, it also means potentially huge down swings too. Sometimes going 100% stocks isn't the best idea, like if you're closing in on retirement, or if you don't have the stomach for 40% losses. I think when people say they are ok with a high risk AA, they really mean that they want bigger gains, but they don't actually know what an extended 40-50% loss actually feels like.

The suggestions above - the psychological tricks and checking the accounts less often - can help, though. If anyone is teetering on panic-selling, then its good to know they can talk themselves out of that state of mind.

[FIRE47]

While I don't disagree with your basic reasoning, I do wonder if you know or remember how bad the 2007-2009 bear market really was. See this link:

https://en.wikipedia.org/wiki/United_States_bear_market_of_2007%E2%80%9309

It takes a lot of belief in stocks to hang in there when a major index is down 54%. The worst case is not that stocks only go down for another 3-4 weeks. Not preaching the end of the world here but stock bears can be really nasty. Also, in retrospect we know that stocks came roaring back, but there was no assurance of that in early 2009.

Well it could drag out the losses over a longer period or trade sideways but that's theoretically less painful. My Canadian stocks and international are already down 20-25% which is roughly 2/3 of my holdings and unless they are going to go to 0 this truly can't continue long term. I guess perhaps you could argue my U.S. stocks could be due for additional pain? I get what you're saying though this isn't a scientific theory by any means. 

I'm only 4 years in as well so we all have different perspectives and ways of adjusting based on our timelines.

[frugalGreg]

Certainly is tough -- I'm in my mid 30s, so still a youngin', but have been through a few very ugly market downturns.  While all the evidence certainly supports the "it will get better soon enough" mindset, I don't think many people for example expected oil's downturn to go so far or last so long, with no imminent end in sight.   Things can certainly get much, much worse before they get better.

The most concerning thing for me is a feeling that the market is increasingly more and more volatile and erratic, and atleast to my sense less and less "rational". Reading Michael Lewis' Flash Boys last year really damaged any last vestiges of faith in the underlying integrity of the markets themselves -- particularly when you understand how much high frequency traders have to gain from extreme volatility - in either direction.