Sticking with the Plan

PlanningWhat Next is more than just searching for new ideas, new challenges. What next is also about planning and preparation. I write “It’s not the plan for the expected outcome that saves you, it’s the plan for the unexpected outcome that does.” Planning for the unexpected means leaving yourself options for almost any circumstance.

Financial decisions play a large role in our lives (which is why I became interested in Going Downfinancial planning) and with the recent market mayhem, planning has proven its worth. But this insanity in the market pales in comparison to 2008. From May 2008 until March 2009 stocks lost around 50% or more of their value. A lot of people couldn’t handle watching their retirement nest egg dwindle away so they sold. They sold because they reacted, because they had no plan.

A new study by Fidelity Investments has some important information about what happened to those people who panicked and what happened to those who had a plan, who didn’t react without thinking.

401k investors who reduced their stock allocations to zero between October 1, 2008 and March 31, 2009 and kept it that way until June of 2011, saw an increase in their 401k of only 2%. The investors who reduced stocks to zero but began investing again sooner than June 2011 saw an increase of 25%, much better. But the people who stuck with stocks, and continued investing, in spite of the precipitous decline, saw their 401k balance increase by – are you ready for this – 64%!

These people had a plan and they stuck with it. Warren Buffett’s Berkshire Hathaway has had a large amount of cash available and they’ve done nothing with it for years. Now, however, Buffett says he’s buying stocks that are “on sale.” “Be fearful when others are greedy, and be greedy when others are fearful,” says Buffett. His plan was, and is, to buy stocks that he feels are undervalued and that doesn’t happen when the economy is doing great.

I did not expect stocks to decline as much and as quickly as they have but my planning has allowed me to do two very important things. First I’ve increased the amount of money I’m contributing to my 401k. Increased, not decreased! And second, I’ve used money I didn’t invest as the market went up to buy stocks that are now “on sale.” I’m no Warren Buffett but I have a plan and I’m sticking with it.

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  • You’re so right–we do need a financial plan, but that’s definitely easier said than done! I really like Buffett and I’m always ready to listen to anything he has to say. I look forward to reading more of your posts!

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