Stocks plunge, but don't say 'crash' just yet(Read article summary)
Stocks took a hammering Wednesday, wiping out most of the gains made in 2014 and briefly touching eight-month lows. But don't let the current swoon in stocks scare you into making rash investment decisions.
I’ve heard predictions of the stock market’s imminent crash quite a few times—from those who might consider themselves knowledgeable in financial matters and, of course, from those who would probably not be considered part of the “in-the-know” financial club.
I’ve been following investing since my early 20s and have been a practicing financial planner/advisor for nine years, so this type of claim grabs my attention no matter how many times I hear it. It usually goes like this: “We talked to so-and-so, and he knows that the market is going to crash.”
This person knows? For sure?
Biggest question that I have for that person: When?
Typically, the “authority” spoken with has no experience in these matters (not by profession, certainly); so how come his/her crystal ball works so well and mine doesn’t? Reality check: Anyone who claims to know for a fact that the market will crash can only be right once in a blue moon. Anyone who keeps guessing the market will crash every day will be right eventually (what about all of those positive days, which far outweigh the negative market days?). These people should not be trusted because they belong in the same category of “advisors” who guarantee certain returns for their clients on equity/bond/mutual fund/ETF investments—it’s just not possible to know for sure, people.
Unfortunately, too many people—those not wise enough to know how to invest properly—invest based upon feelings of fear and greed, which will always cause rash decisions to be made and money to be lost. If you listen to anyone with an opinion on the market or stock investments, you’re bound to get some bad and (possibly) some decent advice.
Never base your financial future on what some random person thinks the stock market may or may not do. Talk to a true financial professional: a fiduciary such as a CPA who is knowledgeable in investing matters, or an experienced financial professional who works for a Registered Investment Advisory firm (no commissions, has a fiduciary responsibility to all clients). These are the types of people to help guide you properly with your financial plan in mind.
If you don’t have a financial plan, what good are those market investments going to do you? Oh, wait—they’re going to crash, so it doesn’t matter. Think about that next time you hear someone say that he or she knows when the market will crash.
Do yourself a favor: Make a budget (I know, it’s hard, but so is anything worthwhile). After you do that, construct a financial plan for your future. Get help from a qualified financial professional if you need it. You can then be prepared for that market crash that will definitely come… someday.
Learn more about Martin on NerdWallet’s Ask an Advisor.