Chaos, plummet, turmoil, crash, Black Monday. These are just a few interesting words I picked out of todays financial headlines. “Wow!”, I can hear you exclaim, “It must have been a really rough day!” My response; “It sure was. That 3.5 percent drop was gut-wrenching!” (insert sarcastic tone here) I know, I know the last half of last week was a bit rough as well, but what are we up to? Just shy of ten percent? That doesn’t even count as a correction. Sometimes when you hear screams that the sky is falling, it is best to take a step back from the noise of the crowd, take a deep breath, and look up to get a glimpse for yourself.
Systemic risk is that risk you cannot avoid no matter how much diversifying, allocating, or other risk mitigating plans you put in to place. It’s the overall risk associated with being involved in the market. It’s the unpredictability of currency devaluation, oil dropping below $40 for WTI, and perhaps most importantly, how people will respond to such events. This is risk that you accept by being a willing participant in the market. Now ask yourself; how does it feel? Being honest with your answer is vitally important. Feelings have a way of causing us to act not in our best interest, but against it. There is no right way or wrong way in answering this question. If the movement of the market in the last few days scares the hell out of you then I would encourage you to simply reflect on what your plan was from day one. Has anything, including the recent decline in market valuations, really changed your plan? If not, then why worry? It’s simple for me to say this, but very difficult to put in to practice. Emotions are fickle creatures and must not be allowed to guide our course. Their presence is always temporal, yet their influence on our course of action can have long lasting consequences.
If you haven’t already I highly encourage you to read Dividend Mantra’s most recent article on time in the market. It’s gold, especially if you’re feeling a little fearful. Remember, it’s OK to be a little afraid, to feel that pain in your stomach associate with a perceived or real loss. What’s not OK is acting on that fear in a way that is not in our best interest.