Usually, the title of a post comes to me after I'm done writing it. But in this case, it came to me during a conversation yesterday with my neighbor, "Carole", who happens to be a very successful business woman in the tech industry.Carole had come over to ask for help moving a piece of furniture, and we started chatting about her career. She told me that for the first time in her life, she was laid off. It is a frustrating situation, but she's not nearly as worried as I would have imagined, especially for a single mother.
This is because Carole has been maxing her 401k for some time, has plenty of emergency fund savings and a number of interviews already set up. She's been living below her means as a matter of financial course -- Carole is a veritable LMF4HMW rockstar! In fact, her main fear right now is taking her daughter out of school should she need to move for work.
I complimented her on being such a prudent financial manager, and she said, "well, if I were so good, my investments wouldn't be so far down right now. (Sigh.) I just feel like I should pull out of the market before it gets worse, but I know that this move would just lock in my losses."
Carole put it very well: 1) she feels bad (out of control, frustrated, afraid, etc.), but 2) knows changing her strategy would result in an even poorer outcome.
As a woman with 20 plus years until retirement, a strong portfolio of retirement and emergency fund savings, and a strong career ahead, Carole should take her advice net of the feeeeelings: stay put. Or as I so eloquently put it, "hang tough". Selling now will not only lock in her losses but prevent future gain.
For some reason, people can not seem to remember that they own shares in the form of funds or individual stocks (in the case of equities), and that just because the portfolio value is down, does not mean that it can not rise.
Carole doesn't have the luxury of continuing to contribute to her 401(k), but for those LMF4HMW out there who do, it's time to BUY.
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