What to do in a crash
What to do in a crash
So I understand that I am in it for 15 years and you lose by selling in a correction or crash.
So, in a crash, what do you do? What are the temptations and thought proccess s that occur and what are the mistakes commonly made?
It seems straightforward. Don’t sell no matter what.
So, in a crash, what do you do? What are the temptations and thought proccess s that occur and what are the mistakes commonly made?
It seems straightforward. Don’t sell no matter what.
Re: What to do in a crash
Buy, it's on sale. At least keep DCAing. Rebalance (sell bonds and buy stock).owenmia wrote: ↑Thu Jul 25, 2019 10:09 pm So I understand that I am in it for 15 years and you lose by selling in a correction or crash.
So, in a crash, what do you do? What are the temptations and thought proccess s that occur and what are the mistakes commonly made?
It seems straightforward. Don’t sell no matter what.
Re: What to do in a crash
Sell bonds and buy stocks. That makes sense.
But the rule is never sell your stocks when it is down no matter what. I need to read up on this.
But the rule is never sell your stocks when it is down no matter what. I need to read up on this.
Last edited by owenmia on Thu Jul 25, 2019 10:16 pm, edited 1 time in total.
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Re: What to do in a crash
I auto save and invest each month, and that wouldnt change. If there is a big crash, I would take the extra principal only payments I make on my mortgage each month and buy more equities each month until the market recoups. I would also rebalance to get back to my correct asset allocation.
I wouldn't do anything else except look a little harder at other ways to scrounge up more cash and invest it (but that is a pretty normal thing for me to do even when the market is doing well)
I wouldn't do anything else except look a little harder at other ways to scrounge up more cash and invest it (but that is a pretty normal thing for me to do even when the market is doing well)
Re: What to do in a crash
Succinctly, don't do anything.
With an adequate emergency fund, there is no need to sell.
If necessary, sell from bonds first instead of causing permanent losses by selling stock fund shares at depressed prices.
Below is my logic about why crashes are a normal part of stock fund investing:
Consider reading some of the behavioral finance books, since it is a little bit comforting to realize that our own fears are both common and well known enough to be labeled by the psychologists. As usual, the phrase "it is simple, but not easy" is part of the description of tolerating a stock market crash.
On a different level, the uncertainty about when, and how bad the crashes are, is exactly why stock investing pays more than bond investing. Risk and reward are intertwined. A crash is not an aberration, it is just a delayed then sudden readjustment of prices.
One retirement researcher suggests starting retirement with a dozen years of spending in bond funds, and spending it, to buffer any stock crashes during the critical first decade of a thirty year retirement. See how the stock crashes are just an expected part of being a long term investor in equity funds?
How about the analogy of using freeways to commute quicker, except when there is a car crash, which is not an unexpected event, but we all have to tolerate/adapt to the results of the crash when it does occur? We can't just turn around and skip work for the rest of the day.
With an adequate emergency fund, there is no need to sell.
If necessary, sell from bonds first instead of causing permanent losses by selling stock fund shares at depressed prices.
Below is my logic about why crashes are a normal part of stock fund investing:
Consider reading some of the behavioral finance books, since it is a little bit comforting to realize that our own fears are both common and well known enough to be labeled by the psychologists. As usual, the phrase "it is simple, but not easy" is part of the description of tolerating a stock market crash.
On a different level, the uncertainty about when, and how bad the crashes are, is exactly why stock investing pays more than bond investing. Risk and reward are intertwined. A crash is not an aberration, it is just a delayed then sudden readjustment of prices.
One retirement researcher suggests starting retirement with a dozen years of spending in bond funds, and spending it, to buffer any stock crashes during the critical first decade of a thirty year retirement. See how the stock crashes are just an expected part of being a long term investor in equity funds?
How about the analogy of using freeways to commute quicker, except when there is a car crash, which is not an unexpected event, but we all have to tolerate/adapt to the results of the crash when it does occur? We can't just turn around and skip work for the rest of the day.
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Re: What to do in a crash
Turn off the news and enjoy friends and family .
Facts are stubborn things. Everything works until it doesn’t.
Re: What to do in a crash
I recently got 250K HELOC. My credit union offered it with no closing cost and so I took it. I never intend to draw the money and definitely won't bother for minor corrections. It is there if I want to buy stocks on the cheap.
Re: What to do in a crash
Don't look at the account value balance. Just look at the number of shares you own.owenmia wrote: ↑Thu Jul 25, 2019 10:09 pm So I understand that I am in it for 15 years and you lose by selling in a correction or crash.
So, in a crash, what do you do? What are the temptations and thought proccess s that occur and what are the mistakes commonly made?
It seems straightforward. Don’t sell no matter what.
Re: What to do in a crash
Grab some popcorn and subscribe to the thread "US stocks in free fall".owenmia wrote: ↑Thu Jul 25, 2019 10:09 pm So I understand that I am in it for 15 years and you lose by selling in a correction or crash.
So, in a crash, what do you do? What are the temptations and thought proccess s that occur and what are the mistakes commonly made?
It seems straightforward. Don’t sell no matter what.
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Re: What to do in a crash
The answer is "nothing" or "rebalance," but that's an incomplete answer. What you want to do to be ready "in a crash" is what you do right now, which is to create and to stick with your investment plan.
https://www.bogleheads.org/wiki/Investm ... _statement
If you think you might not handle a crash well, bring up your allocation to bonds now. For example, someone at 100% stocks could easily go to 90% / 10% bonds or 80% / 20% bonds right now and keep it there, if that fits their risk tolerance. If that helps them stay the course, it almost certainly is better in the long run than if they kept their 100% stocks that they were fickle about just holding.
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Re: What to do in a crash
I think this is the best answer. Financial "news" like CNBC, Fox Business, etc is just entertainment meant to scare and enthrall. ESPN at the stock exchange.
I didn't even realize there was a drop in the markets last December because I steadfastly avoid TV news.
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Re: What to do in a crash
Rebalance as needed to your pre-crash asset allocation.owenmia wrote: ↑Thu Jul 25, 2019 10:09 pm So I understand that I am in it for 15 years and you lose by selling in a correction or crash.
So, in a crash, what do you do? What are the temptations and thought proccess s that occur and what are the mistakes commonly made?
It seems straightforward. Don’t sell no matter what.
Keep investing according to your pre-crash asset allocation.
Turn off Bogleheads, TV news, internet news.
Go for a nightly walk, run, canoe sojourn, bike.
Buck up, little camper.
Make sure you check out my list of certifications. The list is short, and there aren't any. - Eric 0. from SMA
Re: What to do in a crash
30% fall from peak I buy one-year Call Options on a million $ worth of SPY (=SP500). Cost is $50k that I raise from my brokerage margin. Continued fall to 40%, buy another, similar bunch of Calls. Repeat every 10% further fall. Sooner or later sanity returns and I make some $. Last two crashes I made $50k net on one and $100k on the other. Cannot now recall which was which. Emotions drive the massive, rapid dives in the market. But sanity always returns, slowly. If the return to sanity takes much longer then I may lose $. But so far one-year Calls was OK. Enough rebound within a year to at least pay back the margin loan, if it took much longer to go back to peak. I do not hold bonds hence I use margin.
Re: What to do in a crash
Yes, it's that simple. You already know the answer.owenmia wrote: ↑Thu Jul 25, 2019 10:09 pm So I understand that I am in it for 15 years and you lose by selling in a correction or crash.
So, in a crash, what do you do? What are the temptations and thought proccess s that occur and what are the mistakes commonly made?
It seems straightforward. Don’t sell no matter what.
What the bold print givith, the fine print taketh away. |
-meowcat
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Re: What to do in a crash
Hang up the phone.
Oh, a market crash! If you are working and living off your paycheck there is no reason to sell anything except to rebalance. Adjust your contributions to buy whatever is down, likely stocks. If your investments are all in tax advantaged accounts there is no opportunity for tax loss harvesting, but you can do rebalancing in your retirement accounts.
And read some books, take some walks, visit friends and family. It will pass.
Oh, a market crash! If you are working and living off your paycheck there is no reason to sell anything except to rebalance. Adjust your contributions to buy whatever is down, likely stocks. If your investments are all in tax advantaged accounts there is no opportunity for tax loss harvesting, but you can do rebalancing in your retirement accounts.
And read some books, take some walks, visit friends and family. It will pass.
Re: What to do in a crash
If you are worried you could cut your expenses a bit.
While the moments do summersaults into eternity |
Cling to their coattails and beg them to stay - Townes Van Zandt
Re: What to do in a crash
I’d do nothing and go on with my normal daily routine.
"I started with nothing and I still have most of it left."
Re: What to do in a crash
Another very good answer. If you are at 90% stocks now and you are fearful you will panic during a crash and sell, then perhaps 90% stocks is not for you. Try to determine what asset allocation lets you sleep at night, and then stick to that. (Although you never really know until that correction hits.)MoneyMarathon wrote: ↑Fri Jul 26, 2019 1:59 amThe answer is "nothing" or "rebalance," but that's an incomplete answer. What you want to do to be ready "in a crash" is what you do right now, which is to create and to stick with your investment plan.
https://www.bogleheads.org/wiki/Investm ... _statement
If you think you might not handle a crash well, bring up your allocation to bonds now. For example, someone at 100% stocks could easily go to 90% / 10% bonds or 80% / 20% bonds right now and keep it there, if that fits their risk tolerance. If that helps them stay the course, it almost certainly is better in the long run than if they kept their 100% stocks that they were fickle about just holding.
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Re: What to do in a crash
telecaster » Thu Jul 25, 2019 11:15 pm
I auto save and invest each month, and that wouldnt change. If there is a big crash, I would take the extra principal only payments I make on my mortgage each month and buy more equities each month until the market recoups. I would also rebalance to get back to my correct asset allocation.
Yes and Yes.teelainen
Don't look at the account value balance. Just look at the number of shares you own.
---Make sure your AA is appropriate and that in a, let's say, 50% downturn, you wouldn't panic....run those numbers and test them with your emotions....).
---Do everything to make sure your employment is secure.
---And when you hear the omininous echo, "This Time It's Different!," just laugh. Continue your automatic investments from your paycheck and ignore those around you who are panic-selling.
This is a very good question to ask and a good thing to think about before it happens. Since downturns are inevitable.
STC. Good luck. Rus
I'd like to live as a poor man with lots of money. ~Pablo Picasso
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Re: What to do in a crash
completely ignore the market while DCA-ing into it.
Then look back in 10 years and exclaim "whoa - I lost hundreds of thousands of dollars in that last crash 5 years ago"!
ignorance is bliss
Then look back in 10 years and exclaim "whoa - I lost hundreds of thousands of dollars in that last crash 5 years ago"!
ignorance is bliss
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Re: What to do in a crash
Cheer up. Recognize that a 50% loss in value will require a 100% gain to recover, so it's going to be a while....Crash will only take a month, and you've got to wait years going forward....
In the meantime you'll be cheered by posts from people who: 1) "saw it coming because XYZ, so they went all to cash...." and 2) "bought back in at the market low."
In the meantime you'll be cheered by posts from people who: 1) "saw it coming because XYZ, so they went all to cash...." and 2) "bought back in at the market low."
Re: What to do in a crash
1) People tend to learn the hard way. So this is a perfect time to learn some lessons. Sit down and objectively examine what you have done and what can you do better. Revise your IPS, your behavior, and/or your habits, if applicable.owenmia wrote: ↑Thu Jul 25, 2019 10:09 pm So I understand that I am in it for 15 years and you lose by selling in a correction or crash.
So, in a crash, what do you do? What are the temptations and thought proccess s that occur and what are the mistakes commonly made?
It seems straightforward. Don’t sell no matter what.
2) Since you're 15 years away, be thankful because this is your chance to supercharge your portfolio. Then, be considerate with retiree folks as it's an unfortunate time for them.
3) Closely keep track of all our expenses and direct all the discretionary expenses to investing, if possible.
4) TLH and tax planning. This is where you make your money...
Time is the ultimate currency.
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Re: What to do in a crash
Metaphorically:
The various trees in your orchard (retirement funds/assets/etc) are giving less fruit, some less than others.
And, the value of the trees and therefore you total orchard has dropped dramatically.
Do you sell the trees, or just keep harvesting fruit and adapt to the temprarily seasonal lower yields and value?
This also works with chickens, eggs, and chicken coups.
j
The various trees in your orchard (retirement funds/assets/etc) are giving less fruit, some less than others.
And, the value of the trees and therefore you total orchard has dropped dramatically.
Do you sell the trees, or just keep harvesting fruit and adapt to the temprarily seasonal lower yields and value?
This also works with chickens, eggs, and chicken coups.
j
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Re: What to do in a crash
You’re only investing for 15 years? Or you’ll start withdrawing in 15 years? Those are vastly different.
Re: What to do in a crash
Also dont forget to tax loss harvest - you are going to need it when the market rebounds!
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Re: What to do in a crash
Do nothing if you already have a 100% of equity. Do rebalance if you have a set AA (for example 80/20). Do buying if you are already in cash.
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Re: What to do in a crash
Keep buying as per your regular buying schedule. Keep rebalancing due to your regular rebalancing schedule. Stop opening statements. Stop watching the news.owenmia wrote: ↑Thu Jul 25, 2019 10:09 pm So I understand that I am in it for 15 years and you lose by selling in a correction or crash.
So, in a crash, what do you do? What are the temptations and thought proccess s that occur and what are the mistakes commonly made?
It seems straightforward. Don’t sell no matter what.
You might enjoy going back and reading some threads on this forum from 2008 to give you a sense of what it feels like:
viewtopic.php?t=25126
viewtopic.php?t=28103
viewtopic.php?t=103135
1) Invest you must 2) Time is your friend 3) Impulse is your enemy |
4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
Re: What to do in a crash
During the last crash, credit card companies reduced available credit. Credit unions and banks reduced or eliminated HELOCs that weren't currently in use. This strategy might work in a normal crash, but it didn't work in 2008 when everybody realized that the previous risk ratings were garbage and tightened credit and credit standards significantly.
Also, it's a risk. If you lose your job in a big enough economic downturn, then being unable to pay back a HELOC could cost you your house.
I had an untapped HELOC in 2008, but the credit union closed it on me. It surprised me because my credit was high throughout (no issues, no job loss, and significant home equity.)
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Re: What to do in a crash
Make sure you have a well funded emergency fund to eliminate any chance of you needing to tap your investment assets.
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Re: What to do in a crash
Based on the question it may be a very good idea to read a few very good books on investing. I would consider John Bogle - The Little Book of Common Sense Investing, any Jack Bogle books, John Brennan - Straight Talk on Investing, and The Bogleheads Guides - all three of them.owenmia wrote: ↑Thu Jul 25, 2019 10:09 pm So I understand that I am in it for 15 years and you lose by selling in a correction or crash.
So, in a crash, what do you do? What are the temptations and thought proccess s that occur and what are the mistakes commonly made?
It seems straightforward. Don’t sell no matter what.
You will be well informed and rewarded.
John C. Bogle: “Simplicity is the master key to financial success."
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Re: What to do in a crash
Based on the question it may be a very good idea to read a few very good books on investing. I would consider John Bogle - The Little Book of Common Sense Investing, any Jack Bogle books, John Brennan - Straight Talk on Investing, and The Bogleheads Guides - all three of them.owenmia wrote: ↑Thu Jul 25, 2019 10:09 pm So I understand that I am in it for 15 years and you lose by selling in a correction or crash.
So, in a crash, what do you do? What are the temptations and thought proccess s that occur and what are the mistakes commonly made?
It seems straightforward. Don’t sell no matter what.
You will be well informed and rewarded.
John C. Bogle: “Simplicity is the master key to financial success."
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Re: What to do in a crash
You should stay the course, keep investing, and rebalance!
Tune out the noise and investment porn!
Tune out the noise and investment porn!
John C. Bogle: “Simplicity is the master key to financial success."
Re: What to do in a crash
This is the right question to ask.owenmia wrote: ↑Thu Jul 25, 2019 10:09 pm So I understand that I am in it for 15 years and you lose by selling in a correction or crash.
So, in a crash, what do you do? What are the temptations and thought proccess s that occur and what are the mistakes commonly made?
It seems straightforward. Don’t sell no matter what.
Also, make sure your asset allocation is correct BEFORE the crash (for example, right now while the market is close to or making new highs.) Boosting your bond allocation AFTER the crash just locks in losses. Do it now.
Make sure your emergency fund is fully funded now.
Read the old Boglehead threads from what people were talking about and thinking in 2008 during the last crash.
Read "The Great Depression, A Diary" by Benjamin Roth. Your library should have it. That says what one investor did and observed during one of the biggest crashes.
Update your ISP, so you know what you had planned back when things were calm.
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Re: What to do in a crash
What's worked extremely well for me in the 2002 & 2008 crashes is to just never sell bonds to re-balance. I only re-balanced on the high equity side or with new money if I had some. This leaves you with very little to worry about doing.
Tax loss harvest between equities but don't mess with those bond holdings. If the stocks never come back you will still have that solid floor of bond assets.
JW
Retired at Last
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Re: What to do in a crash
Excellent advice. Leave your dry powder. I bought rebalanced into equities with new money. In hindsight it was a very smart strategy.JW-Retired wrote: ↑Fri Jul 26, 2019 11:33 amWhat's worked extremely well for me in the 2002 & 2008 crashes is to just never sell bonds to re-balance. I only re-balanced on the high equity side or with new money if I had some. This leaves you with very little to worry about doing.
Tax loss harvest between equities but don't mess with those bond holdings. If the stocks never come back you will still have that solid floor of bond assets.
JW
Thank you Jack Bogle for teaching us to stay the course!
John C. Bogle: “Simplicity is the master key to financial success."
Re: What to do in a crash
Yes I have gone to 70/30 from 90/10 and back tested it. The earnings are not hurt that badly going from 90/10 to 70/30. And I tested how each would be affected by a 35% drop.jrbdmb wrote: ↑Fri Jul 26, 2019 8:02 amAnother very good answer. If you are at 90% stocks now and you are fearful you will panic during a crash and sell, then perhaps 90% stocks is not for you. Try to determine what asset allocation lets you sleep at night, and then stick to that. (Although you never really know until that correction hits.)MoneyMarathon wrote: ↑Fri Jul 26, 2019 1:59 amThe answer is "nothing" or "rebalance," but that's an incomplete answer. What you want to do to be ready "in a crash" is what you do right now, which is to create and to stick with your investment plan.
https://www.bogleheads.org/wiki/Investm ... _statement
If you think you might not handle a crash well, bring up your allocation to bonds now. For example, someone at 100% stocks could easily go to 90% / 10% bonds or 80% / 20% bonds right now and keep it there, if that fits their risk tolerance. If that helps them stay the course, it almost certainly is better in the long run than if they kept their 100% stocks that they were fickle about just holding.
Re: What to do in a crash
Haha yeah.nick evets wrote: ↑Fri Jul 26, 2019 10:12 am Cheer up. Recognize that a 50% loss in value will require a 100% gain to recover, so it's going to be a while....Crash will only take a month, and you've got to wait years going forward....
In the meantime you'll be cheered by posts from people who: 1) "saw it coming because XYZ, so they went all to cash...." and 2) "bought back in at the market low."
Re: What to do in a crash
Thanks, will do.abuss368 wrote: ↑Fri Jul 26, 2019 10:59 amBased on the question it may be a very good idea to read a few very good books on investing. I would consider John Bogle - The Little Book of Common Sense Investing, any Jack Bogle books, John Brennan - Straight Talk on Investing, and The Bogleheads Guides - all three of them.owenmia wrote: ↑Thu Jul 25, 2019 10:09 pm So I understand that I am in it for 15 years and you lose by selling in a correction or crash.
So, in a crash, what do you do? What are the temptations and thought proccess s that occur and what are the mistakes commonly made?
It seems straightforward. Don’t sell no matter what.
T
You will be well informed and rewarded.
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Re: What to do in a crash
I did not do anything the last 2008-2009 crash except DCA and bought more shares for the same amount of $$ and now my over all is over 300% higher then 2008-2009. I was 100% in equites until I turned 50 couple days ago and now 60/40.owenmia wrote: ↑Thu Jul 25, 2019 10:09 pm So I understand that I am in it for 15 years and you lose by selling in a correction or crash.
So, in a crash, what do you do? What are the temptations and thought proccess s that occur and what are the mistakes commonly made?
It seems straightforward. Don’t sell no matter what.
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Re: What to do in a crash
.....
Last edited by TaxingAccount on Tue Aug 13, 2019 3:00 pm, edited 1 time in total.
Re: What to do in a crash
Looking back, I was down 12% in 2008 and up 29% in 2009. I just kept buying. Nothing fancy.
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Re: What to do in a crash
It already crashed in December, I did nothing.
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Re: What to do in a crash
In market dip or worse, a crash, there is great opportunity to convert a traditional IRA to a Roth one, if the taxes work out for you.
Re: What to do in a crash
Tax loss harvest (TLH) in taxable accounts. If you don’t know how, just wait for a correction then all the posts on the forum will be about TLH and Livesoft will be feverishly trying to answer everyone’s wash sale questions.
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Re: What to do in a crash
1. do nothingowenmia wrote: ↑Thu Jul 25, 2019 10:09 pm So I understand that I am in it for 15 years and you lose by selling in a correction or crash.
So, in a crash, what do you do? What are the temptations and thought proccess s that occur and what are the mistakes commonly made?
It seems straightforward. Don’t sell no matter what.
2. re-evaluate portfolio and holdings, check to see if it is time to change allocation if you are on a "glide slope". Make this correction either with new funds slowly or, if the move is toward a higher "fixed" allocation, then let it drift a bit to that.
3. Check to see if it is time to rebalance anyway, do so with new funds over time.
4. Expenses come out of EF (larger the better) and fixed holdings, etc.
5. Don't panick.
6. Don't fiddle or tweak the portfolio.
7. Sell when things need to be sold per your IPS. It depends.
j
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Re: What to do in a crash
What I find addicting is seeing our portfolio increase in value and determining the best way to achieve return over the long term.
I think about investing but am detached psychologically from our portfolio at the same time.
Make sure you check out my list of certifications. The list is short, and there aren't any. - Eric 0. from SMA
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Re: What to do in a crash
It has served me well. I have every Jack Bogle, Jack Brennan, Vanguard, and Bogleheads book in hard cover and mint on our bookshelf. I have referred to them countless times over the years as questions arise.owenmia wrote: ↑Fri Jul 26, 2019 10:15 pmThanks, will do.abuss368 wrote: ↑Fri Jul 26, 2019 10:59 amBased on the question it may be a very good idea to read a few very good books on investing. I would consider John Bogle - The Little Book of Common Sense Investing, any Jack Bogle books, John Brennan - Straight Talk on Investing, and The Bogleheads Guides - all three of them.owenmia wrote: ↑Thu Jul 25, 2019 10:09 pm So I understand that I am in it for 15 years and you lose by selling in a correction or crash.
So, in a crash, what do you do? What are the temptations and thought proccess s that occur and what are the mistakes commonly made?
It seems straightforward. Don’t sell no matter what.
T
You will be well informed and rewarded.
John C. Bogle: “Simplicity is the master key to financial success."
Re: What to do in a crash
Easy --- just keep your regular contribution pattern as you did when times were good.
Thank God for Wall Street Bets.