Fear…and Loathing Your Decisions

“Be fearful when others are greedy, and be greedy when others are fearful,” so says famed investor Warren Buffett. That’s a tall order, but that wisdom is proven over and over again in the stock market. The recent financial crisis and attendant market drop sent many investors to exit. Many unloaded substantial portions of their stock portfolio, permanently locking in losses. Those close to retirement were particularly spooked.

For those able to exit the market early and quickly, withdrawing was a sound decision. But most independent investors waited until there was a mass exodus from the market, ‘following the herd’ as they say.  By then, prices had dropped to near their ultimate bottom, and investors were left with a pile of cash 20 to 50 percent lower than their portfolio had been a few months earlier. By contrast, those investors that stuck it out have largely seen their portfolios return to pre-crisis levels.

During the crisis, I continued to invest in our ROTH IRA accounts, according to a long-established plan. It made me really nervous (and my wife more so), but I kept with it. We have decades until we retire, so even if the stock market took 5-7 years to rebound, we’d still be OK. As it turns out, we spent a year buying equities ‘on sale’ and now our portfolio has rebounded nicely, boosted by those cheaper shares.

When investing for retirement, it’s critical to set a plan and keep contributing.  You may need to modify what equities you buy, but continuing to sock money away is the smartest play.