Today, the stock market is in a free-fall. It’s likely a reaction to President Trump threatening new tariffs on Chinese goods yesterday. Certain individual stocks, and stocks in the specific industrial and materials sectors are poised to take the biggest hit.

What exactly does this mean for someone who wants to Do Better With Money? Well, we don’t advise investing in any single stocks, for the very reason you see playing out before you today. The risk of government legislation (even lover’s spats between Trump and China), the risk of a single company’s misbehavior leading to its downfall (Enron being the textbook example) is just too great. While we don’t give any specific investing advice – we’ll never tell you specific funds to invest in – we do recommend choosing 3-4 growth and international stock mutual funds with long (greater than ten years) track record. Buy them when the market is up, buy them when the market is down, and hold on to them for at least five years. 10-20 years is better.

If you absolutely must “play the stock market” we recommend to do so only when the following criteria have been met (please understand we don’t buy single stocks, this is just the wisest way I can think of doing it if you feel you have to gamble)

  1. You have no consumer debt. No credit card balances, no student loans, and no car loans. Even at 0% interest. If you have $5000 to play in the market, put it on debt instead if you still have some.
  2. You have a fully funded Emergency Fund of 3-6 months of expenses. For most of us that is somewhere between $10,000 – $20,000 in a savings account that you never touch for anything except a true emergency. Buying Boeing stock when you think it is down is not an emergency.
  3. You have your retirement well underway – meaning you are putting 15% of your household income into mutual funds via a combination of employer-sponsored plans and IRAs (Consider Roth if you are under 55 or so).
  4. All money you have in single stocks or other volatile, high-risk securities represents less than 10% of your net worth. It’s the same principle as “I’m only taking $200 to Las Vegas, because if I lose it all it won’t change my life.” Yes, playing in single stocks and having a market downturn will change your life in a most negative way. Ask the folks whose retirement was in Enron stock.

If all this is in place and you want to play in this volatile market, have at it. Whatever route you choose, don’t sell your mutual funds if they’re following what the market is doing overall. It may be a bumpy ride, but it’ll be back over the long term.