Blood In The Streets: What To Do When The Markets Crash

If you’ve taken a look at the news over the past few days, you’ve noticed that the US financial markets have been in a bit of a tailspin. I can’t say I’m surprised at any of this, the writing has been on the wall for a long time coming.

I worked at Merrill Lynch (just for a summer) about 10 years ago, and the thought of that company EVER getting bought or going out of business was the furthest thing from my imagination then. I also had an offer to work for Lehman Brothers before coming to Microsoft that I almost accepted. Now, that company filed for bankruptcy as well. A few years ago the thought of that happening would have been unfathomable.

The financial markets are reeling. Even those who didn’t invest directly in those companies shares are affected, since even index mutual funds have a fair exposure to the financial services industry. With almost half of all American adults invested in the stock market in some way, this means that a lot of people are losing money.

What to do at times like this?

I am no financial expert, but I tend to approach situations like this the same way I approach other situations filled with stress and fear in my life.

First of all, I think about what my long term vision is. In the case of finances, I am looking to grow my assets over the long term. I’m not looking to try to get rich quick through my investments or take excessive risk. I take enough risk in my job every day, and prefer to place my energy there. I expect my “day-job” to be the source of my real wealth over the long-term, not short-term portfolio gains.

Next, I think about the things that I can control, and don’t worry about the things that I can’t control or have already happened. If I have assets that have already lost tons of value, I don’t worry about the loss, but instead think about what I can do right now, which is either do nothing or sell to prevent future losses. Generally, if I don’t think an asset that I own is compelling enough to buy right now, I sell it.

Lastly, I think about how I can better set things up so that a dire situation doesn’t happen again in the future. In the case of finances, proper asset allocation would ensure that you are not overexposed to any single asset class. At the end of the day, I have my own opinions about where the US financial markets are headed over the next 3-5 years, and it is NOT a positive outlook. I’ve focused on investing in fixed income assets (for the first time ever!), commodities (gold), the energy sector and funds that are global in nature. This has been my strategy for the past few years, and it has served me well.

So this is what I do, what is your approach to finances at a time like this?

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