- Tyrion Lannister: l’m the captain of the ship, and if the ship goes down, l go with her.
- Lord Varys: That is good to hear. Though l’m sure many captains say the same while their ship is afloat.
The markets have had an interesting couple of weeks. And by interesting, I mean bad:
But how bad is it really? If you pay attention to the media, you’d think that the end is near:
Take a step back from the edge and realize that despite all of the noise, the S&P 500 is back to where it was about 14 months ago. Contrast this with March 2009 when the index hit a low of 666, a number it hadn’t seen since 1996 (13 years!). And the most recent fall comes after a market that’s been charging upward for almost 10 years. In this perspective, it’s much less scary:
But, we still need to talk about how to prepare the mind for bad weather.
When is the best time to prepare for the following events?:
- old age
Hint: It’s not when the storm comes or your spouse walks out on you.
The time to prepare for shitstorms is when skies are clear and sunny. You don’t buy home insurance in a hurricane or negotiate terms of separation in the middle of a bitter battle. You don’t wait until you’re old and grey to eat well and exercise. The same goes for money.
The best time to plan for a downturn is when markets are happy and healthy. Consider the following:
- How would a 30% drop in the S&P change your financial plan? Would it make you crazy with anxiety?
- Are you the type of person who wants two years of cash on hand to ride out storms or are you OK with an emergency fund of $0?
- If the market experienced a couple bad years, would you stay afloat?
- Bullet points are a strong indicator of lazy writing.
While I have no idea where the market is going, keep in mind:
- Investing is a long-term game. Over time, productivity gains and population growth grow economies which grow investment portfolios. But in the short-term, the markets are subject to the whims of politicians and geopolitical events.
- Building on the above, when I put money into the stock market, I expect it to be there for at least a decade. For more on the topic, check out Mr. Collins excellent Stock Series and/or book.
- Despite the recent market fireworks, 2019 could be much more chaotic. The trade war is only on hiatus. The North Korean nuclear issue hasn’t been resolved and is actually worse. Then there is American politics… Mr. Market doesn’t like uncertainty.
- Timing the market is very difficult. Don’t forget that you have to be right twice; it doesn’t do any good if you sell at the top, but fail to get back in at the bottom.
- Economic cycles are natural. Nothing goes up forever. They don’t go down forever either.
- Yes, more bullet points; more lazy writing.
- And on the topic of lazy writing, semicolons are another strong indicator.
Think long and hard about your plan before the market takes a big, steaming dump. The dump WILL happen and it won’t be comfortable, but it will be easier if you’ve set your mind right before it happens.
Keep Calm And Invest On
I had some money laying around that I was saving for a real estate deal. Instead, I threw some of it into the markets on 12/20:
I have another $30,000 in cash that I’ll throw into the fire if markets drop another 10%. Bring it on
When the Great Recession kicked my portfolio in the groin, I freaked out. I cut my 401(k) contribution and didn’t look at any of my portfolio balances for years.
Now, I’m in a different place. I know that no matter what the markets do now, there is a strong probability that they’ll be higher in a decade. I lose zero sleep when Mr. Market has a hissy fit. Instead, I welcome the drops by putting more dollars to work.
When the clock turns over to 2019, Mrs. 1500 and I will resume contributions into our 401(k) plans. If markets get really bad, we’ll throw some more after-tax money into the fire too.
If you’re investing for the long-term, I hope that you’re continuing to contribute money to the markets. The time to go shopping is when everything in the store is on sale. This is no different for the stock market.
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