The market is crashing right now
A short bit of orientation for the moment when everything is red. No selling, no forecasting, just the points that actually matter right now.
First: what you're looking at right now isn't a loss yet. It only becomes one if you sell. Until then, it's a number that will change again.
Second: declines like this are normal. Broad markets drop by about ten percent roughly every year, by twenty percent or more every few years. That this one feels different is normal too. It feels different every single time.
Third: check exactly one thing. Will you need this invested money within the next three years? If no, today's price changes nothing about your plan. If yes, your allocation was too risky, and that's a question for later, not for today.
Fourth: do nothing today. No selling, no buying more on credit, no new strategy. If you have a written plan, read your sentence for exactly this situation. If you don't, write it once this has passed.
The best days on the stock market often come exactly when things look worst. Many of the strongest recovery days fell in the middle of a crisis or shortly after. In March 2020, for example, the market dropped by about a third within a few weeks, and some of the biggest daily gains in decades followed right after. If you get out in a phase like that, you're very likely to miss exactly those days.
Then there's a simple calculation. If your portfolio falls from €10,000 to €7,000, you then need almost 43 percent to get back to €10,000. As long as you don't sell, that stays a number on the screen that can change again. If you sell, you turn it into a real loss that no upswing will make up for. There's more on this in the lesson Drawdown.
That leaves one very practical question. Can you get through the next few months with the money in your account, without selling anything? If yes, the price gives you no reason to act. If no, first make sure your running costs are covered. That's your liquidity, and right now it matters more than any view on the market.
Summary
- A decline only becomes a loss once you sell.
- The strongest recovery days usually come right after the worst ones.
- The only question today: will you need the money within the next three years?
Did you get it?
When does a decline turn into a loss?
When you sell. Until then it's just a number that can change again.
Why is getting out during a decline especially costly?
Because many of the strongest recovery days come in the middle of the crisis or shortly after. If you're out, you miss them.
What's the one thing you should check at this moment?
Whether you'll need the invested money within the next three years. If not, today's price changes nothing about your plan.
Related
- Why most people should invest, not tradeStage 1
- How much loss can you actually takeStage 0
- DrawdownStage 3