(Certified financial planner Wes Moss provides personal finance advice and accessible investment strategies. His guest post appears here weekly.)
It’s a classic cartoon scene: The loopy scientist looks through his telescope and sees a huge meteor hurtling toward Earth. He panics and sets all sorts of insanity in motion before realizing he was looking though the wrong end of the telescope — at a speck of dust.
Investors are playing the role of that nutty astronomer these days, based on feedback from my clients and calls to my radio show. We are experiencing the biggest, small correction in the history of the stock market because investor reaction to this dip is three times what it should be. The market is down approximately 6 percent and people are reacting as if it’s down 18 percent.
I call this the “3X Election Correction.” I’m getting more calls now than I did during the first and second European debt meltdowns, which lowered the market almost 15 percent and 19 percent, respectively.
But the current slump is just a typical market correction, turbocharged by three things:
• Anxiety, from those who didn’t vote for President Barack Obama, at both his reelection and that it might have a negative impact on the economy.
• Fears about the looming “fiscal cliff” of increased taxes and deep government spending cuts.
• Continued worries about the soft economy in both the United States and Europe.
A market correction — defined as a 10 percent drop in the S&P 500 — has occurred 165 times in the past 85 years. That’s roughly one every six months. Every time the market corrects, it does so because of something new, unforeseen and uncertain. So it’s not entirely unexpected to see the market go down based on developments such as the fiscal cliff scenario.
Take the long view
For those who may not like the new laws and regulations Obama may shepherd into existence, keep in mind there is no other place on the planet with a better rule of law to protect your money and property.
And you may not like that a lot of factory work has been outsourced to China and Mexico, but don’t forget we are still far and away the world’s manufacturing leader.
Yes, this is a frustrating time, with great political and economic uncertainty. But our best years lie ahead. You have to be in the market to capture that upside, whether you trade regularly or simply monitor your 401(k).
That means developing a long-range investment plan – a strategy that will achieve your goals while allowing you to sleep at night.
You have many choices and tools at your disposal. But once you settle on a plan, you need to stick with it, through thick and thin.
Because the only thing I can guarantee you is there will be more thick and thin.
Think back to corrections in previous years. Did you alter your long-term plan then?
– Wes Moss, for AJC Atlanta Bargain Hunter blog