Don’t Get Whipsawed

By Fritz Schafer, with contributions by Chris Schafer. August, 2017.


The definition of whipsawed, as Michael used it, is:  To be defeated in two ways at once.

Something like being whipsawed happened to me this summer when I attempted to run a very difficult 16 mile loop on trails at Great Seal State park.  I love to run on the trails and I felt that I had the stamina to make it, but after 11 miles I was totally wiped out.  I continued to run, and that is when I tripped and met the trail up close and personal.  I landed so hard that I initially thought I broke my arm.  After the fall I felt sick to my stomach and totally defeated in more ways than one.  Adding insult to injury, I still had 5 miles to go!  Luckily, my arm was only bruised not broken.

Normally, Michael used the term “whipsawed” when talking about the stock market, but not always.  The term is used to describe a fairly common situation in the stock market when days of significant rises or drops are followed by an opposite move.   Investors run the risk of getting burned if they overreact to the initial moves.   For example if the market drops 5% in one day, and an investor panics and sells.  Investors should keep in mind that stock market declines like this example are often followed by a rise back up to previous levels.  This same investor would have sold low, and had to buy high to get back into the market.   “Whipsawed”

However, Michael would also use the term to describe some other situations that occasionally occur.  Here are a couple of examples:

You are considering remodeling your home or buying a new home.  In Michael’s experience he often watched clients remodel their homes, often at a considerable cost, only to sell the house a couple years later for a new home.  Often they did not receive the full benefit of the remodeling in the sale price.

You are considering borrowing money from your 401(k) or other retirement plan to pay off credit card debt.  Too often such loans are not repaid.  The consequences are not only that the withdrawals become taxable, but there may be an extra 10% tax penalty if you are under the age of 59 ½.  In addition, your retirement savings is now reduced by the amount of the loan.

At Brooke & Schafer, one of our biggest concerns for our clients is Risk Management.  Our goal is to advise our clients on the ups and downs of market trends. Not getting whipsawed fits into this area of advice.  We strive every day to help our clients achieve their goals and dreams, through sound financial advice.  If you have a difficult financial decision to make, please do not hesitate to give us a call.


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