Actually, these aren’t new concepts. You definitely do NOT want to abide by these rules when driving around town, but, I’m not talking about traffic now am I?
There is a lot of speculation about a looming recession. The markets are at all-time highs and trade war articles don’t stop flooding news feeds. We are in the biggest and longest bull run the global economy has ever seen. At what point will it come crashing down? Nobody really knows the answer to that, however, a recession is inevitable. Any college student in a basic economics course can tell you that markets have recessions and expansions, and you can’t have one without the other. There is no heaven without a hell, and no expansion without a recession. It’s just one of those things in which that’s the way the world works!
So, a recession is coming. We don’t know when and we don’t know how bad, nevertheless, it is coming. How do you prepare for that? The most common course of action is to sell. When the markets turn red, so does your account balance, everyone sells.
Stop right there.
Doesn’t that go directly against the timeless saying “buy low, sell high?” It does, and you know it. So why does everyone decide to sell their assets when they see red? Answer: lack of discipline. It’s your money mindset not fully developed. Your money is controlling your actions. You see your accounts go down, the initial response is to sell. When your money starts to dictate your actions, you are no longer in control of your money.
If you think about it, it kinda makes sense from a psychological standpoint. It’s like a fight or flight response to a declining account balance. You can either flee from the market, or fight it by taking the punch and weathering out the bumps. Obviously the easiest course of action is to flee. Nobody wants to see their hard-earned dollars drained from their account. It’s overbearing, stressful, and can actually make you go crazy just thinking about it. The most important thing to understand in these situations is that withdrawing your money during a time of recession or pull-back is genuinely stupid in the majority of cases, and for a number of reasons.
- It directly violates the “buy low, sell high” notion that rings true for the entirety of the stock market since it’s inception.
- Selling stocks causes deeper plunges. Think about it. You are taking your money directly out of economic circulation. The more people who do it, the worse the economy will get. Don’t be one of them.
- When you sell your assets, it becomes a taxable event. So now not only has your account declined in value, but the government can tax you for it. Don’t get kicked after already falling to the ground.
- People who sell their assets during times of recession rarely know when the best time is to buy back their assets. Stick to your dollar-cost-averaging strategies and you can deal more easily with stock market pullbacks over the long run.
Red means GO.
It’s time to change your money mindset. Majority people see red markets and sell. Only the few who have developed their money mindset and obtain the discipline and mental fortitude will see red markets as “buy.”
Think of it another way – everyone loves a good discount, right? Well, stock market pull-backs should be seen as the same. It’s a discount! Why would you ever want to pay full price? Don’t get me wrong, losing money sucks. But a damn good discount? Now that’s something to get excited about.
These mental developments take time, planning, and careful consideration. Not everyone has the mental strength or financial strength to whither out a recession, and take the punches to their bank account. However, it’s always better to be punched once or twice than to be kicked while you are already down.
Sticks and stones may break your bones but the stock market trend is always up.
This is another thing to consider about the stock market. It has it’s ups and downs. These are normal. After all, you aren’t always going to be at your best every single day of your life right? You can’t and shouldn’t expect the stock market to do the same. But for the most part, each and every one of us does a good job in this life, and the stock market does too. Even after recessions, depressions, and pullbacks, the stock market trend is always up. Sure, the bad days hurt like hell, but overall the good days outweigh the bad ones.
So what should you do in the event of a recession? How you can you learn to develop your money mindset, build your financial discipline, and increase your financial literacy? Answer: choose fight over flight. Don’t sell your assets because you are afraid, buy more of them because you can fight and win. Learn from the experience, gain more knowledge, be prepared for the next fight.
“Ahh yes, the past can hurt, but the way I see it you can either run from it, or learn from it.”Rafiki, The Lion King