I’ve been getting a lot of emails about this recently, and by a lot, I mean 4 emails, which is 4 more than I’ve ever gotten.
I want you to scroll through some charts of previous bear markets. I’ve circled the bottoms in red.
Looking through this, one thing is crystal clear to me. It doesn’t matter when you buy, only that you buy.
If you’ve been sitting in cash and want to buy but are worried that stocks will go lower, then break up your purchases. The math behind lump sum over dollar-cost averaging has been settled, but this is a time where emotions matter more than spreadsheets.
What’s critical is that you don’t just make mental plans to get back in, you have to write them down. For example, “I will break up my purchases into four tranches, the first Wednesday of every month for the next four months.” Whatever it is, it doesn’t have to be rocket science, it just has to exist. It’s also worth saying the obvious, which is that you don’t have to have 100% of your portfolio invested in stocks.
One last chart I want to leave you with is a long-term look at the Dow. Bear markets all have one thing in common, they end.
Our country has experienced World Wars, inflation, deflation, stagflation, financial panics, and everything in between. We have come out of all of these events stronger than ever, and we will do so today. It’s going to hurt like hell, but we’ll pull through this.
Everybody who has ever invested during our darkest days has ultimately been rewarded. There’s no reason to think this time is different.
Michael Batnick is a managing partner at Ritholtz Wealth Management. He is the co-host of Animal Spirits, What Are Your Thoughts, and The Compound and Friends. For disclosure information please see here.