PTY - Stocks Are Volatile: Why You Should Not Be Scared
2024-01-24 07:35:00 ET
Summary
- Retail investors need to manage their expectations and understand that stock market volatility is normal. While it can be unnerving at times, it doesn't have to be frightening.
- Our goal is to have a portfolio that will generate the income we need every year – regardless of what happens in the economy.
- The best way to do this is to have a variety of holdings, in a variety of sectors that will perform differently in different economic environments.
- Focusing on the portfolio income provides a tangible measure that is not subject to the emotions of the market.
- No matter how scary the market prices look, you can know how much money you can withdraw from your portfolio each year without threatening your retirement.
Co-authored with Beyond Saving
One of the greatest enemies that retail investors have is their own expectations. The stock market can be a powerful tool to build and grow wealth, but it can cause more damage than good for those with unrealistic expectations.
The late Charlie Munger once said :
Stocks Are Volatile: Why You Should Not Be ScaredYou can argue that if you are not willing to react with equanimity, to a market price decline of 50% two or three times a century, you are not fit to be a common shareholder and you deserve the mediocre result you are going to get — compared to the people who do have the temperament, who can be more philosophical about these market fluctuations.