Zman to amplify on what SamClem said stop thinking about your stocks fund as a piece of paper that who's price goes up and down more or less at random, and now only seem to go down rapidly. Instead think of them like owning a paid off rental property.
I don't own rental property, but if I did I probably would have been tempted to sell a couple of years ago. However, in reality I would probably have simply collected my rent check partly cause I'm lazy and mostly because I would have had to find something else to buy. In hindsight, I would have been smart to sell, but without the benefit of a time machine. I am out of luck. Housing prices have dropped 20-40% depending on where one lives but rents have remained reasonably stable in most places. Assuming I've got a long time tenant who pays promptly and doesn't ask for much. Does the drop in housing prices effect m?. Not really, I probably can't get away with raising rents this year without risking the tenant leaving but other than that no impact. I certainly wouldn't be tempted to sell because I know that the rent I can charge in a few years is higher than the rent I am getting today.
Assuming you own something like the Vanguard S&P 500 fund or total stock market in your 401K/IRA, what you really own is share in the future profits of virtually every major company in the country. Its worth stepping back and considering what this really means.
A million people buy a Starbuck's coffee, you earn a $1, A million people buy a PC your share of Microsoft profits is $20, Intel $15, HP $6 and Dell's $5. A million people go to an ExxonMobil gas station and fill the tank up you earn $3. Now because we are in a recession the number of people buying coffee, PCs,and filling their gas tank is going to go down, and the actual profit the companies earn is going to decline even more.
But the 40% market drop is saying that the number of goods and services purchased not only this year and next year (but in 2011,2012, 2020... 2099) is going to drop by a large percentage, and the profits earned is going to dropped by 40%. I for one don't think that Apple's, Exxon Mobil, General Electric, and Proctor & Gamble, is going to be making 40% less profit in 2011 than they are today. Do you? Regardless of the current price of your 401K you are entitled to the same share of the profits as you were last Oct, probably even more due to the reinvestment of dividends.
You still own the same rental property, sure it is better for your mental health to hear wonderful tales of the property across the street going for a fantastic sum, but since you really don't need to sell. It has a minimal impact on your life. The same is true for your 401K and investments.
If you were younger, I'd say you should be dancing in the streets at the opportunity to buy more stock in this mother of all after Xmas sales, but at our age. Don't panic and read Warren Buffett's
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