The sky appears to be falling today if you are invested in the US, Canadian or quite frankly almost any global stock market.
Below is the CNN’s Fear & Greed Index.
Today’s index shows that 9 reading with 0 being extreme fear and 100 being extreme greed.
We all know the sage investment advise “Buy Low, Sell High”!
“Be Fearful When Others Are Greedy and Greed When Others Are Fearful”. – Warren Buffett
From a theoretical perspective, most people I know hold this advise in high regard and I cannot deny that this is good myself. But how many people really and truthfully follow it when the time arrives to take action?
There is no doubt that anyone who is invested in markets today is at the very least feeling uncomfortable. So what do people do when fear takes over in the markets?
The issue lies with our primordial extincts when we are faced with something that scares us. You know, that “fight or flight” thing we have all been taught. There is a third option, as many deer staring into oncoming headlights can attest to. They simply get paralyzed and do nothing.
So as far as investments go, our human nature dictates that many people will go against the sage advise and will actually sell low today. By doing so, they are choosing “flight”, that is sell, sell, sell, just like so many are doing today. This only further exasperates the market fall and causes even more fear.
Even more will be paralyzed and do absolutely nothing. Just like a deer staring into oncoming headlights, these individuals only have two possible outcomes. They will either be hit, that is they will suffer significant loses or the oncoming stock market train swerves and they luckily avoid a financial train wreck. Yet it would take several weeks or months before they feel comfortable with their investments again.
Then there are the very tiny percentage of us who will choose to “fight” by following the sage advise of buying low.
Using the last US stock market crash in US and Canada during the financial crisis as an example, ask yourself if you had the guts to invest when prices hit bottom?
In fact, no one could tell you then where the bottom was at the time and the “when prices hit bottom” on became apparent only several months after the fact.
Is today the bottom in the financial markets? Honestly, I don’t know and anyone who says they truly do is lying.
As a result very few people can actually say they bought at the bottom of the market then, just like so few people have the guts to go against the grain and buy stocks today.
This holds true for any investment class, stocks, bonds and even my preferred investment class: residential real estate.
A lesson I personally learned is that success investing in real estate is much more dependent on time in the market, rather than trying to time the market.
Mind you anything can happen, such as what happened in the US, but even there real estate prices in the previously hardest hit areas are rebounding nicely.
In fact, I fully expect that even those people who bought at the very height of the boom before the last crash should do very well with their investment over a 30 year period.
Why? Well because irrespective of whether we are in a raging booming economy or in a financial crisis, you, me and everyone in the world have one underlying need (not want) which needs to be fulfilled. We all NEED a roof over our head, a place to call home!
It is for this reason that I find the starter home real estate market, the most liquid of all the real estate market segments, to be one of the very best and lower risk investments anywhere.
In fact, they have proven to be effective and great investments for well over 2,000 years!
This I will continue to sleep at night with the knowledge that my financial future, retirement income and lifestyle will remain intact regardless of what happens in the financial markets on any given day.
Unfortunately, I do not share the same faith in stocks and bonds.