Today the Dow is in the midst of a 500 point drop, the S&P 500 is down 2.90% as of this writing, and the NASDAQ is off 2.68%. Oil prices have plummeted from $60 in May of 2015 to the $20’s today. The S&P is down nearly 8% since 1 January with the worst opening since…ever. Here’s another story — worst two weeks ever.
What are you doing now? Are you in panic mode? I’m not. Hopefully most of you feel the same. Those who wish to succeed in retirement planning, wealth building, and being a good steward of their personal finances should now be focused on keeping their powder dry. Or, as the millennial might say “Keep Calm and Stock up on Cash.” The market runs in cycles and this may well be the beginning of a bear market. We haven’t hit capitulation, which is defined as 10% drop in the composite in one day caused by investors running for the door. That day may soon come as many baby boomers are at or nearing retirement. They don’t have the time horizon that you and I may have — they can’t wait (or think they can’t) for the market to turn around. This may cause them to panic sell and send the markets even lower.
Things are probably going to get ugly and stay that way for a while. Oil companies will default because they can’t pay for the equipment (assets) that they borrowed money against (liabilities). Wells/projects are scheduled years in advance, so an investment that was approved at the $100 a barrel days is now a huge liability for many companies. If you were wondering when oil was that high, it was only about 18 months ago. There is talk of a strong potential for widespread defaults not only in the oil industry but other sectors across the economy.
Keep Your Powder Dry
I’m in my early thirties and I’m going to keep my powder dry. I’ve yet to make any purchases this year and will simply be focused on maxing out the cash levels (up to 11,000 for a married couple) in our Roth IRA’s. It will take some time to do this. By then the market may have settled, or dropped another 10-20%. At either rate, waiting will serve to temper any emotions I have towards buying and selling. I can sit back and think about what I should do with this new year’s capital.
If I were looking for stocks on sale, I would wait. If I bought last week I’d be down a few percent and be ready to see more stock price evaporate. Yields are still climbing, so I’m waiting. What are you doing? Backing up the truck or heading for the exits?