Staying the course means not changing your strategy.
A lot of the best and wisest investors strongly recommend people not change their investing strategy as soon as those people hit a bump in the road.
The reason they say that is purely because of how often people abandon their plans at the worst possible time.
An example would be somebody that is 100% invested in stocks with all of their retirement money and then the stock market decides to go down 33%. A lot of people in this situation just up and decide that being 100% invested in stocks wasn’t a really great idea and they sell all their stocks and invest all the money in bonds.
Doing that right there is about the fastest way to permanently devastate your net worth.
What you are essentially doing is selling stocks low and buying bonds high. A recipe for pure disaster.
You may indeed determine that you really should never have been 100% invested in stocks to begin with, but the time to take action is not when it involves locking in your losses.
If you get in this situation and you can’t sleep at night, I would instead suggest that you stop investing more in stocks if you can avoid it and start putting all new money towards bonds, stable value funds, and rainy day cash. Money in these assets will hopefully keep you from needing to sell your stocks low.
Over time you will gradually drift more towards your desired asset allocation as more bonds get added and no new stocks get added. Once the stocks have gone considerably back up and they start going sideways again is the time to start thinking about reducing your exposure. Then would be a good time to sell half your stocks and go 50/50 into stocks and bonds.
One of the most important things to do in all of investing is just to stick with your plan that you put in place. Your rate of return will be less and potentially even negative if you can’t do this.
You should assume a maximum short term loss of about half of everything you have in stocks.
If you can’t feel OK sticking with your plan after losing 50% of your stock value, then you have too much money in stocks. If you can’t feel OK losing 30% of your account value in a year, then you shouldn’t have 60% in stocks.
The least risky of all portfolios is somewhere between 25/75 and 33/66 between stocks/bonds. You should not go less in stocks nor more in bonds than that. Investment companies, like insurers, invest that way because it is ideal from a risk vs reward standpoint.
A 50/50 split is probably good for most investors. Maybe 66% stocks and 33% bonds. However you do it, you should try to make it so that it uses relatively easy mental math. Like stocks = bonds or stocks = 2x bonds. With easy numbers like those, you can calculate without too much work when it is time to think about doing a rebalance.
Rebalancing is a pretty powerful financial tool. It goes a long way toward insuring that you always buy low and sell high. You should consider adding that to your financial plan.
Rebalancing helps you a lot when you are trying to stay the course. If your course is 50/50, then rebalancing gets you back on course when you are drifting off course.
Some studies have shown a 1% or 2% yearly return increase from simply adding rebalancing to an investment strategy. That means putting new contributions toward the part that is farthest away from the intended allocation and if things get too far off course then do an additional one time rebalance to immediately get the numbers back on track. That increase in returns adds up a lot over long periods of time.
Whatever you do, you should make sure to find a plan during a time when you aren’t being driven by fear and then stick with it even if you are being driven by fear.
What some people have done that they found helpful is to just literally write down their investment “rules”. To write it out on a piece of paper and put it somewhere, “If stocks are down 40%, don’t sell them, just keep doing what you are doing”. Something like that can help people not make rash short term decisions.
Find something that works for you and then just stick with it, even if it’s hard.