The splash heard ’round the world

Thanks to the Internet, we’re living in a world where information travels around the globe at lightning speed.  I recently wrote that when a rock falls into a pond halfway around the globe, we tend to feel the ripples here in the states.

Shortly thereafter, as most of us are aware, an economic boulder fell in China.  It wasn’t just a ripple in the pond; it was an enormous tidal wave.  And no one can say for certain when the onslaught of waves will stop hammering our shores.

Such financial turmoil makes it easy for your emotions to overtake your mind, allow panic to set in, and abandon your investment strategies.

My experience suggests that’s not such a good idea.  Rarely do emotional, panic-driven moves result in a positive outcome.  That’s not only true in the investment arena but also in many matters of life.   

I have written on numerous occasions that investors need an iron stomach to get through difficult times.  What we are now going through is a prime example.  If there’s one word I’d use to describe what we are in the midst of, it’s “extreme.”

I say extreme because we’re seeing investment values plummet one minute and then skyrocket just a few hours later.  These are not insignificant daily changes.  They’re extreme. 

The collapsing Chinese economy ignited a worldwide financial crisis and the European and U.S. markets have been swinging wildly as a result.

Unlike an amusement park, these are rides that can lead to stress.  A recent report estimated that the average 401(k) was down $3,000 in just one day.  In other words, if someone decided to take their money out of the market now, they would be exiting with a substantial loss.

So, how do you not cut your losses and run?  As I’ve written many times, you need to have an iron will and keep your emotions at bay.  When the markets are on a downslope, it’s probably not the time to make major modifications and adjustments to your portfolio.

Over the years I have navigated a great number of clients through financial storms.  That includes the traumatic one-day, twenty percent drop in 1987.  Often, when people panic over pocketbook issues the end result is negative.  I’ve seen it many times.

If you’re nervous or unsure about your portfolio, schedule a meeting with your financial advisor.  Granted, financial advisors don’t have a crystal ball, but reviewing your strategies might remind you why you diversified and selected your investment strategy in the first place.  It might also help push aside your inclination to panic.

Naturally, I can’t see into the future either.  That being said, however, I’m still fairly optimistic that there are sunny skies on the horizon.

Our domestic economy may not be growing at lightning speed, but it is growing.  Once again, you can hear the sounds of construction.  Vehicles are moving out of showrooms.  You need reservations to get into many restaurants.  And businesses are tepidly optimistic.

I believe the focus is shifting from China, the world’s second largest economy, back to our economy.  We have the opportunity to take the baton and lead the world’s economy out of the doldrums.  When this happens, the value of investment portfolios will bounce back and continue to move upward.