The market is taking a pounding this week because of fears that the coronavirus will continue to spread. The fact that China has quarantined several manufacturing plants, such as those that make smart phones, has made people jittery. It is affecting production schedules. Time to panic? Nope!
For the long term investor this is an opportunity to buy more shares at a discount. Think about it. When items go on sale during black Friday do people say, “I am not buying because the prices have dropped?” In fact I just bought more shares last night for my retirement fund. It is nice to buy things at a discount.
What is happening now is called a market correction. That is when a major index like the Dow Jones or the S&P 500 drop 10% in short period like they have this week. My account value has gone down, but that is to be expected. Just because the value goes down doesn’t mean I have lost money. Remember this, you only lose money if you sell low. I am just riding out this wave and picking up more shares at a discounted price. Consider this a sale. Now you don’t buy every time there is a sale, so you can sit this one out. However, I tend to buy shares every month anyway. Why would this be different?
Now we have been in a pretty extended bull market. A bull market is when the market continues to rise. Market corrections are part of the process. Look at corrections as giving the market a time to breath and compact the earnings. However, even if this should turn into a bear market, which is a period of a drop of 20% or more, it still won’t be time to panic. Just keep accumulating your monthly shares and you will be better prepared to experience the next bull market. Why? Because your base of shares will be wider.
For example, if I had 10 shares worth a total of $100 that drop to be worth $50, that’s a big drop. But remember, you don‘t lose money if you don’t sell, just current value. If while those shares are now $5 each, I buy $100 worth, I now own 20 more shares at $5. In total I would have 30 shares worth $150. When the market bounces back to the $10 they were worth, I would have 30 shares now worth $300. However, your average cost per share would be now be around $6.50, and that is a good thing.
All in all, don’t panic. Ride it out and you’ll come out better on the other side. Point 5 in this article, How Mutual Funds Work, will tell you how mutual funds can make money even in a down market.
If you have questions don’t hesitate to ask here. Take charge of your money!
Your biggest cheerleader on social media,
P.S. Day 307—please pray for the $7.2 million goal for 2020.