I’m back! A wild string of events, combined with some laziness on my part, has resulted in me posting absolutely nothing for an entire month. I even considered shutting down the blog altogether. But after some reflection, I’ve decided that my original purpose of sharing my financial and life experience with anyone who wants it is still worthwhile and more than doable – provided I recommit myself to it a little. At this point, in light of my rapidly changing life circumstances, my goal is one post a week. And what better cue to get back to posting than a historic stock market event?
For the last couple of years, I’ve had plenty of people laughing at me. After all, I’ve been calling for a significant correction, or even a recession, since 2018 and I even did so publicly on this blog. In my eyes, the underlying economic fundamentals of this economy, as well as those of others around the world, have nowhere near justified the stratospheric asset pricing we’ve been seeing for quite a while now. And while recent events may be a little vindicating, this is no time for schadenfreude or gloating. Besides the fact that I’m not that petty, that wouldn’t do anyone any good. Instead, here is my take on where we are now and what I plan to do going forward. Please note that everyone should do his or her own diligence and I am in no way advising anyone to do anything in particular.
For anyone who hasn’t been paying attention, over the last week or so, stocks have collapsed, blowing right through correction territory (a loss of 10% or more) to the cusp of finally ending the more than decade long bull market that has had more people believing themselves to be investment savants than at possibly any previous point in the history of the world and entering a bear market (20% loss or more). Today alone, the DOW, Nasdaq, and S&P 500 indexes each lost over 7% of their value and even caused trading to be temporarily suspended for the first time since the Great Recession. At first, this was attributed mostly to the coronavirus, or more accurately, to the resulting mass hysteria drummed up by the typically profit motivated, rubbernecking mainstream media. But at this point, it appears pretty safe to say that was nothing more than a catalyst to the broad-based obliteration of trillions of dollars in asset value.
So what am I doing about this? Absolutely nothing…yet. I’ve had less than 5% of my assets exposed to the stock market in any way, shape, or form for well over a year now. But I’m eying the trigger with greater and greater excitement as I await the right time to start moving back in. I don’t think we’re there yet. I anticipate at least another week or two of serious volatility and carnage. Remember, the oil price collapse element just happened over the weekend so there will likely be more industry fallout there. Plus, the FED is likely to do at least one more pointless knee jerk rate cut, which will likely have a similar lack of positive effect to the .50% one they did last week, since they’ve long since painted themselves into a corner by following a policy of presidential placating rather than giving the economy the tough love it actually needed. When I decide it’s time, I’ll start pushing my 401K and Roth IRA money back in, probably 20% at a time. It’s almost impossible to “catch the falling knife,” so I’ll use dollar cost averaging to get as close as I reasonably can.
What if you didn’t get out when I did? If you have a long enough timeline before you need the money – I’m talking years – you’re fine. Staying in as opposed to bailing out has historically been the right move. Remember, you haven’t lost a penny until you’ve actually sold your asset for less than it was worth when you bought it. And if you keep putting additional money in, you will dollar cost average your way into a better position over time.
If you don’t have a long enough timeline, you shouldn’t have been in a stock heavy position. Sorry to be blunt, but sugarcoating isn’t going to make the situation any better. At this point, you have to adjust your plan to accommodate the new reality. Maybe you can hold off on retiring until the market recovers or if you have to retire soon, maybe you can work part time or do something else to bring in enough income to avoid being forced to sell and realize losses. Or if you have gains elsewhere, maybe you can use those assets for some liquidity and harvest some losses to offset them so you at least get a tax benefit out of the situation. It depends entirely on your individual circumstances.
Remember, there are two ways to look at this. One is that your asset values have declined. The other is that there is a big sale going on! If a recession does take place, it will definitely create huge opportunities one way or another. Happy hunting!