The stock market has fallen by about 7% in the last four weeks as measured by the S&P 500, ostensibly because of China’s growth slowing down and other international issues. The question that every investor needs to ask themselves when the markets experience big swings is “Am I okay with this?”.
There is no way to anticipate the exact date of a market decline or the date the market starts is recovery. Attempting to do so is pure folly. The best thing we as investors can do is to prepare ourselves emotionally, understanding that during our lifetime, no matter how old we are, that market will have periods when it up dramatically and other periods when it is down dramatically.
How do we prepare ourselves? By having mix of stocks and bonds in the portfolio set so that when the market goes down, it hurts, but not too bad, and when the market is up, we feel good, but not too good. A 7% swing in the market over a few short weeks is the right time to become introspective. If you were nervous and ready to sell everything, you may be too aggressively invested. If all you could think about was taking advantage of a down market and buying NOW, you may have a high risk tolerance and need to be more aggressively invested.
Therefore, China’s lasting impact on your portfolio is not measured in the short term gains or losses get produced, but rather how you set your investment strategy. Setting your target mix is part art, part science and changes over time.
At the end of the day, what really matters is can you reach your financial goals AND sleep at night, not guessing if growth in China next quarter is higher or lower than analyst estimates.