A man who carries a cat by the tail learns a lesson he can learn in no other way.
-Mark Twain
Whenever the stock market takes a big dump, I feel a little giddy. Mindy and I are still in the saving part of our lives (she works, I don’t [Wife-FI? Spouse-FI??]), so corrections are opportunity.
We got very lucky last spring. We had paid cash* for a home back in 2020, but our plan was always to execute a cash-out refinance and invest the proceeds.
Leverage isn’t for everyone, but we love cheap money. Yay mortgages! The timing of the refi coincided with COVID. We didn’t catch the bottom in March, but we still did pretty well in April.
Learning The Hard Way
I’m not an investing savant. Truth be told, I’m a money moron. I had to learn some lessons the hard way. Back when the Great Recession pummeled the economy, I cut my 401(k) contributions down to the amount that would allow me to get a full match and not a cent more. I freaked out. In 2008, when I could have contributed $15,500, I put in something like $2,000.
Whoops:
This error will cost me millions of dollars eventually. Passing up on contributing $50,000 in my mid-30s with the assumption that the markets will double about every 8 years (9% annual return including dividend reinvestment) results in painful numbers:
- Age 35: $50,000
- 43: $100,000
- 51: $200,000
- 59: $400,000
- 67: $800.000
- 75: $1,600,000
- 83: $3,200,000
I learned my lesson in the only way I could, by living it. Oof.
What Would I Have Done?
I’ve been thinking a lot about what’s been going on the markets recently. Some stocks like $GME (GameStop) and apparently silver now are moving with little regard to fundamentals. It’s an interesting story to watch, but I want no part of the action. Some will get rich, but most won’t. Hell, some may get prison time. However, I have asked myself this:
If you were 25, what would you have done?
I like to think that I wouldn’t have been caught up in the game, but that’s probably not true. The thought of making a very quick buck would have been too tempting.
It’s not sexy and won’t get you engagement on social media, but the slow and steady approach is the road most should choose. I’m more convinced of it than ever. Last month, when we sold the trailer park, it all went into VTSAX:
Our old home is currently under contract. Should the sale go through in a couple of weeks, almost all of that money will buy more VTSAX.
Schemes that you have read about recently are the difficult path to wealth. You probably won’t succeed.
Instead, live simply and frugally. Create a money surplus and invest it in index funds consistently. Always think long-term. When you care about decades, the short-term noise won’t affect you as much because you know that over many years, the direction is up.
For further reading, see JL Collins’s excellent Stock Series or his book.
*Note: We paid “cash” to strengthen our offer. The “cash” was mostly borrowed money from a HELOC, but to the seller, there wasn’t a mortgage contingency on the contract and we were able to close very fast.
Join the 10s who have signed up already!
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*Only if your life is pretty bad to begin with.
that clown show last week was fun to watch. i did not participate either.
freddy smidlap recently posted…From Index Funds Into Stocks – For Beginners
Clown show indeed! Do prisons issue clown shoes?
GME was a perfect storm with the undervalued play and the turnaround story of activist investor. The short squeeze has been interesting to watch. Sadly people looking for the next GME might not realize that the other plays do not have a similar setup. But definitely interesting to watch.
Financial Freedom Countdown recently posted…Real Estate Syndication: What Is It And How Can You Profit?
I feel like there’s a missing blog post about the sale of a trailer park
You are correct. We’re waiting for one more payout so I can write it with all of the numbers in hand.
TBH, the story of the why you sold it is probably far more entertaining than the numbers. You don’t seem like the type of person to get-in and get-out quickly without a good reason. The TV show COPS was cancelled last year…..coincidence?…hahah
Ha, the reason… I may have to keep to myself… I hate to be like that.
I fully agree, was thinking the same… I was like, did I miss something?
YES! I agree. I would love to hear more about this. I know a few people in the trailer park game and they are loving it. I would be interested in hearing the other side…
Chris recently posted…The Ultimate FIRE Guide
I’m pretty psyched to divest myself of 1.16kg of sterling silver we’ve got lying around because mom liked to buy crap on eBay fifteen years ago. At .925 purity and netting 90% of today’s price from a reputable smelter, that’s about nine hundred bucks (or almost twice what it would’ve been if I’d sold it four years ago like I originally intended). Better lucky than good!
That’s smart to pay with cash and then do a cash-out refi after the fact. We moved our investment property into an LLC and doing a 1031 exchange was a nightmare.
I’m still nervous about the markets at these prices, but over the long term (decades) whatever happens now will likely be a small blip.
When I was 24, I bet on all the internet stocks and mostly broke even. That was an after-tax account and I was lucky enough to be able to max out my 401k and Roth IRAs (the limits were lower then). Those retirement accounts had traditional low-fee index funds. Those investments have done quite well over the last 20 years. So I guess it’s okay to make some mistakes, but get the big stuff right and you’ll be okay.
Yep, markets now are a little nutso, especially with all of the COVID uncertainty. Regarding COVID, I think that there is a pretty good chance the mutations will render the current vaccines useless before most have a chance to get it. Depressing thought.
And yeah, you just have to get a few things right in life to make it all work.
Wealth is hard but that’s how the world grows!
So I have to be honest, I had a lifelong buddy text me last week and say “Dude, what is going on in the stock market? should I get in?”, I had no idea what he was talking about and had to call him to find out. He saw the Game Stop stuff and was wondering if he should buy in…………….. I am very vocal about long term index investing. My first thought when I heard this was the “Joseph Kennedy Sr. and the shoe shine boy” story. When I hear things like this I have to pause and think is this a bubble???… I was tempted to pull out at that point…. It was definitely an ironic moment but I will continue to stay the course!!!
I’m sure at 25 I would’ve put my money into GME or silver or btc. Luckily it wouldn’t have been all my funds, because I knew then about long term investing. But, it sure was exciting.
I’m reminded of that quote, if you want excitement, take up skydiving, it’s cheaper.
My real problem is probably holding losers longer than one should. Like right now, commercial property shares that went down >50% due to the ‘rona… It happened so fast in March and hasn’t recovered. Cut the losses or wait it out? yeah should probably just dump those and get some more VTSAX.
charlie @ doginvestor.com recently posted…Optionality of working for fun or profit
Ah, Game Stop. Mob mentality. Speculation vs investment. Kinda like Tesla stock but on steroids, don’t ya think Mr. 1500? 🙂
Here are some materials for you about electric car adoption:
https://www.youtube.com/watch?v=W2ruK_6zvRY
https://seekingalpha.com/article/4273529-electric-vehicles-are-outperforming-traditional-s-curve-dynamics
https://www.patreon.com/posts/automobile-3-bev-45669754?utm_medium=social&utm_source=twitter&utm_campaign=postshare
Talk again in 2030?
Yes, let’s talk after you OWN (not lease) a Tesla after 10 years. I’ll wager $1,000 you’re unable to keep it on the road for 10 yrs. Is it a bet? BTW, my Chevy truck has been operational for 18yrs and still running. https://news.google.com/articles/CAIiEB4jnVhfcuoMzKPurT_5PAsqGQgEKhAIACoHCAow2Nb3CjDivdcCMMPf7gU?hl=en-US&gl=US&ceid=US%3Aen
10,000,000 in annual vehicle sales or a 2 trillion market cap on 12/31/2030 or any time before. How about $10,000?
If Tesla is as shitty as a product as you say, there is no way the company will reach these numbers.
For some, it really is a Difficult Path to Wealth. I’m sure you’ve heard, ‘Pigs get Fed and Hogs get Slaughtered.’ Oink, Oink! 😉
Haha, so you’re not going to take me up on the bet? Again, I’m saying Tesla sells 10,000,000 vehicles annually or has a 2 trillion market cap by 12/31/2030. I’ll put up $10,000. Will you? We’ll each wire $10,000 to a neutral 3rd party.
I’m sure that there are services on the internet that will act as an intermediary. Put up or shut up.
Even GM is making the move to Electric – https://www.gm.com/electric-vehicles.html – so whether it is Tesla or GM, a paradigm shift is happening and Tesla has a head start on everyone. There may be some traders out there speculating and the current value may not be supported by the current fundamentals, BUT that is not to say Telsa is a mirage. At least they are currently creating tangible products and not just vapor-ware like some of the other EV start-ups.
Yep. I’m thinking that by 2030, 50% of new cars sold will be electric and I’m sandbagging here. The tide is turning faster than most realize.
Tesla has a strong lead and if it can get its 4680 batteries going (much faster to produce) or Level 4 autonomy perfected, the lead gets bigger.
But, I fully acknowledge that the share price is nuts too. The stock market is always forward-looking, but the current price is exuberant.
Can I get in on the $1,000? 2014 Model S owner here. Car is great. Only issues were some hiccups with the automatic door handles that Tesla fixed. I’m pretty sure I’ll have the car for 10 years (3 to go), but hopefully much longer.
There are so many less moving parts in EVs than ICE vehicles and most braking is regenerative so i would bet the maintenance on an EV will kill any ICE vehicle (other than possibly updating the battteries every decade). Probably a safe bet.
One thing I did do right was to max out my 401K and my Roth, when I was eligible, every single year. And it was 100% in stocks and I never sold a thing in any of the corrections or bear markets we sailed through. A couple of years prior to retiring I moved to a 60-40 stock/bonds&cash mix but through all my accumulation years I stayed in stocks and it rewarded me.
What I loved about GME was that it actually brought everyone together. I’ve never felt more connected to people to go up against a single entity (Melvin capital) as I did banding against the big hedge fund.
Did I participate in the frenzy? No. I just bought puts when it was at $160 and was sweating when it hit $400, even $500 at one point! Now I’m just back to breaking even on the puts. That was wild ride!
I got caught up in the whole GME thing and bought 1 whole share! I am a gambler at heart (love the casinos!)
It is interesting that I have followed this $115 (less so now) than my entire portfolio. I do feel sorry for all those on Wallstreetbets that have their entire life savings invested!
Kevin @ TwoTeacherTrek recently posted…2020 … A myopic year
Casinos! Oof! I tried gambling a couple of times. The last time I did (20 years ago), I blew through $20 in like 5 minutes. That was the end of that!
Not judging you though unless you’re losing massive amounts.
I tried playing some Casino video poker a few times and once you understand the game, you can play (and lose) each game pretty quickly. I was losing $20 in like 5 minutes too. I can think of better things to do with that $20 like put some gas in your car, groceries,…pizza or a 6 pack of microbrew 😉
Very spirited comments on this post! Love it. Ok, so i’m also looking forward to the future post about the trailer park sale/investment.
Anyways, I was somehow was brave enough (?) in 2006 to move the portion of my 401k out of “safe” government bonds. This meant that all of my 401k funds were 100% in stocks and put in the irs max amount into my 401k. I felt I had enough time for the markets to recover before I hit retirement age at my job. I also did research on the 5 year periods after each US market correction. I am so glad that I stayed the course. I did mess up a few years when I missed some employer matching because I hit the max amount before the last pay period.
But, I don’t own Tesla or Amazon stocks, so everything evens out, right? Also, I bought a Nissan Leaf (used and much cheaper than a Tesla) this past summer and love it as a go run errands car.
Haha, that guy sure likes to troll me. Oh well.
Trailer park: Coming soon… First, I have to get my Frugal Valentine’s Day post out! 🙂
Nice work moving out of bonds in 2006! You’re sitting pretty today!
Stocks: It’s all good. I got pretty lucky and I’m thankful for that.
Nissan Leaf!: I’ve ridden in a couple of them and they’re awesome little cars for 90% of driving! The main beef I have wih them is the battery management technology. The batteries don’t seem to degrade at a quicker rate than a Tesla’s.
Any attempt at market timing hasnt worked in my favor over the years. Either I ended up being too afraid to put in a big chunk during a sell off or decided to wait until it went down a little more. It always seemed to turn around at that point and just keep going higher. What has saved me is I’ve always dollar cost averaged although Im sure I could have done better just putting in most of any surplus money in one shot. One thing I did do was keep investing automatically during the 2008-09 recession. I also started maxing out my 401k contributions which was a big move for me at the time considering I didnt have as much investing knowledge then. I figured stocks were on sale so it would probably really pay off in the long run being I had over 30 years till retirement. My account balances are now pretty huge considering I’ve never made any kind of big money from my employment.
A nice reminder, thanks for sharing. As the GME rollercoaster has been playing itself out, I just keep repeating the mantra: get rich quick is a great way to go broke even faster. Slow & steady wins the race!
Nice work on your plan. Personally, I am not a big fan of leveraging the house, but everyone has their own path.
Cheers!
Your error was only opportunity cost and is known in hindsight though.
Dividend Power recently posted…Millionaire Interview 3 – Dividend Earner
That’s a fat stack for VTSAX. Love it.
Now, as long as the US and world economy doesn’t collapse for a while… we’ll be okay.
GME has been wild to watch. In a sad, but also an interesting way. Like a slow-moving train wreck. Can’t look away. Ugh.
Your mention of silver reminded me of something…and now I have to go take a peak…
(…trying to remember which account, which brokerage, login information…)
Here we go, one of those old legacy brokerage accounts I still have pre-FI learning days that I’ve mentioned…
204 shares of $AG at $10.08. More than a decade old.
Looks like I should have remembered this and sold a few days ago instead of seeing it now. But, the second best time is probably at open tomorrow!
Cheers!
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There are so many less moving parts in EVs than ICE vehicles and most braking is regenerative so i would bet the maintenance on an EV will kill any ICE vehicle (other than possibly updating the battteries every decade). Probably a safe bet.
Exactly! Internal combustion looks like a Rube Goldberg machine compared to an EV.