Lord of the Flies by William Golding is a classic book and one of my favorite reads.  The story is about a group of boys stranded on a deserted island who try to establish a civilized society with the help of the conch.   It doesn’t take long before their community falls apart and panic and chaos take over with the boys splitting into separate factions.  The boys are eventually rescued but not before Piggy dies and the island is set ablaze.

After Hurricane Harvey rolled through Texas, panic and chaos set in as people thought our state was running out of gas.   In Austin, the stations ran out of gas as people filled up cars and other containers hoping to avoid a coming crisis.  A picture posted on social media showed one gentleman filling up two 30-gallon trash cans with gas, an illegal and hazardous activity.  Despite assurance from the Texas Railroad Commissioner, Ryan Sitton, Austinites and other Texas residents are draining gas pumps dry.  He said we have nothing to fear but did add, “This is a case of a self-fulfilling prophecy.”

In a panic, individuals stop thinking, lose control, and make decision with long term consequences.   This happens often when the stock market falls.  During a stock market correction, investors panic and act irrationally.

Here a few tips to help you when the stock market falls again:

• Don’t Panic. I can’t repeat this often enough, don’t panic!  The stock market may stay depressed for days or months but it will eventually recover.
• Remain Calm. The panic and chaos will eventually subside and order will be restored.
• Carry On. A market correction is a great time to revisit your financial plan to make sure you’re still on the right path to financial freedom.  The downtime will give you a chance to focus on what’s most important to you and your family.
• Buy Bonds. A well-diversified portfolio should include an allocation to bonds.   During a market rout, U.S. Government bonds perform well as investors seek shelter.  When the stock market dropped 37% in 2008, long-term Government bonds rose 26%.[1]
• Seek Opportunities. During a market meltdown, you’ll always find a bargain.  If the price of Apple stock price falls 50%, they’ll continue to sell iPhones, ear-buds and chargers.  In the 2008 correction, Apple dropped 57%.  In 2009, it climbed 147%!  A $10,000 investment in Apple Stock in January of 2008 is now worth $64,425 generating an average annual return of 21.24%.[2]
• Give. During a correction or calamity there will always be people in need.  Can you use a portion of your wealth to help others?

Hurricane Harvey was a terrible storm and my heart aches for the lives lost and the destruction that occurred, however, I’m hopeful we’ll eventually reap a harvest of peace.

Let us not become weary in doing good, for at the proper time we will reap a harvest if we do not give up. ~ Galatians 6:9.

Bill Parrott is the President and CEO of Parrott Wealth Management, LLC.  For more information on financial planning and investment management, please visit www.parrottwealth.com.

Note:  Your returns may differ than those posted in this blog.  Past performance is not a guarantee of future performance.

September 2, 2017

[1] Dimensional Fund Advisors Matrix Book 2017.

[2] Morningstar Office Hypothetical Tool, 1/1/2008 – 8/31/2017.