What Blacks Should Know About Stock Market Sell-Offs

Taking stock of your emotions when stocks are tanking

(Image: Thinkstock)
(Image: Thinkstock)

It’s easy to say and write, “Relax, don’t panic. Markets go up and down,” but it’s a lot harder to do that when you and your family’s financial well-being is on the line. While plunging profits and economic downturns in faraway places may feel like a major threat to your personal wealth, as is the case with many things, the most important thing to manage is your fear.

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That’s no small task when you consider that money affects everything from our lifestyle to our relationships. Money coach and author Jacquette Timmons says managing fear in falling markets can be particularly difficult for blacks.

“Many of the blacks who are investing and climbing the wealth ladder are experiencing early generational wealth–being among the first in their family to amass wealth,” says Timmons.

“It often comes with a sense of responsibility–people feel like it’s their duty to protect the money for their families. Someone in this situation would be a candidate for panic selling when they see a market falling because they would have a heightened concern about minimizing their losses,” she adds.

Ariel Investments L.L.C. finds that 24% of African Americans would pull money out of the market in the event of a downturn compared with just 10% of whites.

“Call these market swings ‘the antacid test,’” says certified financial planner and author, Paula Boyer Kennedy. “If you get acid reflux when you look at the S&P, perhaps you should look at a more conservative allocation.”

While it’s important to understand your personal tolerance for risk, Boyer Kennedy adds that it’s important to keep perspective. “Investing is for the long term. Do not worry about how your investment did in the past few months. Stocks are still one of the best places to put money when the time horizon is 10 years or more. Experienced investors like Warren Buffet love market downturns, because they can now buy stocks at a lower cost.”

Financial experts also say it’s important to keep sight of your goals. “What’s the timing of your goal?” asks Timmons. “For example, money you need within one to 5 years, should be in a money market fund, a certificate of deposit that you can roll over or a regular savings account. Money that you don’t need for five to 10 years should be in the financial markets, I recommend a mutual fund that skews more toward stocks. As for money you don’t need for at least 10 years, you can be really aggressive with stocks. Make sure you have some international exposure as well,” she adds.

Always keeping in mind that you don’t lose any money in the stock market until you sell.