Over the years, I have found that “we all learn through different mediums.” Charts and graphs can’t always show why one should stay invested in times when the stock market turns negative. I hope the following analogies can help explain the merits of not losing faith in your portfolio when the news is telling you “the sky is falling.”
Prior to 2015, markets rose consistently for three years. History tells us that the market is extremely cyclical, therefore what goes up will, eventually, comes down. Think of the market as if it was a helium filled balloon floating up into the sky. It can only go so high before it starts to float back down. The market can only “go so high” before it too comes back down. It must happen. Accepting the fact that you will experience the lows will make it easier for you to stay calm when the market is more volatile. Know your investments, be ready for things to change, and rest assured that those changes are part of the process all investors experience.
When you invest in the market, especially in stocks, you are essentially planting your own seeds. When a farmer plants his seeds in the spring, he is taking a leap of faith, trusting that it is going to rain, trusting that the seeds get the right nutrients so that 3 months later, he will have his harvest. In some years, the harvest will be better than others but one thing is certain if you don’t plant any seeds you will starve for sure. Have patience and faith in those seeds that you are planting. Knowing you have the right kind of seeds will bring you peace and allow you to have faith in your harvest.
When you see the National Park Service purposely setting forest fires, they are using destruction to solve a multitude of problems. They are burning away old, dry hazardous landscape in a controlled environment before bigger fires unexpectedly happen. They may also be attempting to promote new growth in the forest in order to provide food, vegetation, for wildlife. The fire itself is an incredibly destructive, negative event, but only a few short months after this event, there is a swift renewal of life in the forest. The same thing happens after negative events in the market, and in life, negative events like the bird flu, war, and political unrest absolutely affects the market, but such circumstances can act as the catalyst which allows stocks to reach new highs.
Driving your Car
Investing in the stock market is similar to driving your car down a 5 lane interstate during rush hour. Each lane represents a different kind of investment such as US stocks, international companies or bonds. We have a tendency to keep changing lanes in an effort to get ahead, but odds are if we stay in one lane, we will arrive at our destination in about the same time as we would have by hopping in and out of the other lanes. The journey is up to you. Are you a lane changer or are you someone who can be patient? Be PATIENT and you increase your chances to arrive at your destination happy.