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.
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.
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.
*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.
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