No, that is not a valid reason to leave the stock market.
Market Timing is Impossible:
You know the stock market has declined, you don’t know what it will do next. You do not know when there will be a massive correction. It may start today. It may not be for a year. Timing the market is impossible. When you attempt to time the market, you have to make two decisions: when to get out and when to get back in. Short term decisions on the market are random walk, meaning the drunk staggering around a light pole. There is no prediction. There is no such thing as momentum.
Don’t Lose Control of Your Emotions, Maintain Your Discipline:
You are making an emotion based decision. Fear and greed are the base emotions of the market. They will cause you to overreact. Focus instead on the objectives you established for the portfolio. Rebalance to honor those objectives. Discipline is how to win.
Stocks are the Best Asset to be Invested In:
If you sell off your stocks, you have to either reinvest the cash into another asset class or leave it in cash. Leaving it in cash is bad because inflation will eat up your buying power. A popular asset class is real estate. Real estate is just another asset class (like stocks) that goes up and down. Choosing when to buy real estate is a timing decision. Right now, real estate is soaring. I have no idea if it will continue to soar. Momentum is a false idea. On average stocks have a higher return than real estate so I would stay invested in stocks.
Brexit Will Not Have any Long Term Effects on the Stock Market:
Brexit will cause some bouncing around in the short term. There was a large fear fit today. It was not rational. Nothing is different today than yesterday. In the long term, stick to your investment plan. Look at the market long term, get away from the panic and greed emotions, and show some discipline. Winning the game is about sticking to a plan. There will always be a sensational news item that nobody really understands but must be really bad because everybody says so. It used to be the Greece crisis. Next week it will be something else. Europe will still be there in five years. People will still buy Shell or BP gas, Lipton tea, and Bayer Aspirin. I will still occasionally buy Scotch Whisky. The stock market will be fine.
Even if the stock market crashes; it doesn’t matter. The stock market crashed in December 2007, continued to crash in 2008 and part of 2009. It lost half of its value. It recovered everything and then some by the end of 2010. In the stock market, patience is very rewarding.
As I’m writing these to help my readers, I would be very appreciative of any input in regards to what I should write next. If you want me to write about a particular topic, please contact me. If you would like to submit a post to my blog, please contact me.
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Questions for the comments
Did my explanation make sense? Do you agree or disagree with what I said?