Revolution and civil war in the Middle East and North Africa, bankrupt Eurozone governments, joblessness in the US, a trade deficit in China and a massive earthquake and resultant tsunami sowing death and destruction in Japan…
The sky is falling.
What should you do when the market crashes in response to a world gone mad? For most small investors the only sane thing would be to do… nothing.
If you're a long-term investor then acting on the day-to-day, month-to-month and even year-to-year ups and downs of the market will erode your wealth faster than any of the crises you're reacting to can ever do. You're a long-term investor; you need to block out day-to-day noise and take a long-term view. Making knee-jerk decisions each time there's a catastrophe or the market plummets is a sure-fire way to the poorhouse.
It's natural to want to retreat to a place of safety in times of turmoil; to wait things out 'till you're convinced the danger has passed. However, this is exactly what you should not do.
Wars, assassinations, natural disasters - these things never stop. There will always be bad news and investors will always be tempted to react. However, the record shows that through good and bad times the markets always perform based on the fundamentals when given enough time.
So, in tumultuous times, before you act, stop and think. Remind yourself that you're a long-term investor; your "paper" losses only become real when you sell and by the time you're 60 very few people will even remember the Fukushima nuclear plant blowing up.
In South Africa, over the past 100 years, there have been numerous depressions, recessions, wars, revolutions, epidemics and disasters. Since 1960 the JSE has plummeted by more than 30 percent a total of seven times and each time prices recovered.
Remain calm. Don't panic.