Who Cares?

When we look at the history of the stock market since about 1900, we see a common trend that is ignored by most people. Something economically bad happens in the world or the US and people respond with great fear. They overreact with their investments by selling like crazy.

The problems are usually significant, but temporary. However, they reacted to as if they would never be solved simply because we cannot see into the future and predict exactly how or when they will be solved.

For example, right now there’s the BP crisis and the Greece/Europe financial crisis. Are they real problems that will directly affect a lot of people’s lives? Yes, absolutely. But, unless you are dependent on the Gulf for your income or you live in Greece, you will probably not be affected greatly.

It will affect your investments temporarily because people overreact and act irrationally. However, if you’re in your investments for the long-haul, you will be OK. Just stick to your investing plan and go about your business.

From an investing perspective, I really don’t care at all about the BP oil spill or Greece’s financial meltdown. Yes, I feel sorry for the people directly affected, but that doesn’t mean I have to make emotional decisions about my investments.

Part of the problem is that people see all the negatives and none of the positives. Yes, Europe’s financial system in flux is bad in general, but its good for European exporters as the cost to make their goods relative to international customers purchase price goes down. The same thing happened recently when the dollar had significant inflation. It helped our exports. So, some people actually benefited from it.

In the end though, the positives and negatives are pretty much moot. Long-term, very broad index funds will go up. Period. Book it. Sleep well at night.

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