Wow, has the market changed in just one week. While there will be ups and downs we are experiencing a rather violent down right now. Just take a look at this chart from Personal Capital which represents my total net worth over the last 90 days:
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| www.personalcapital.com |
That is a pretty wicked drop off and has erased all of the last year's gains in a matter of weeks. Am I concerned? Not really. Remember we are in this for the long haul and the goal is to never sell anything. That said after the first dip I took a fairly large loss in my stock market derivates account (Stock Options) and decided to fold that entire portion of my portfolio. As luck would have it I got out right in time to miss the steepest downturns. I never time the market, it just happened to work out for me.
Over the years that I have been investing, I have tried a wide array of financial investments and platforms. I am a firm believer that if you want to talk about something you should put your money where your mouth is. Experience is valuable and my experience with selling Stock Options while fun and interesting, turned out to be a poor decision. That is why it was such a tiny sliver of my overall portfolio. That was learning money and while in the end I paid a price versus making money, I was disciplined in not chasing a failing investment and simply cut my losses.
The Crash of 2020
Should you be concerned about the latest stock market crash? If you are invested for the long haul that is a very loud NO. In all actuality, something like this could not have happened at a better time for me. With a 5 year outlook to reach FI, cheaper prices now are exactly what I need. Lower stock prices buy higher dividend yields. Until companies start cutting dividends this is a great situation for me and the EAF Portfolio. And here is why:
This is the S&P 500 ETF (SPY) just before and after the "Great Recession" of 2008. The market absolutely crashed from over $150 per share all the way down to a little over $73 a share so more than 50% of the market gone in less than 2 years. In the depths of the losses, everything looked pretty bad for investors however there are two key things I want you to see in this chart.
The first is what happened less than 5 after the bottom of the crash. From the very bottom of that valley in 2009 it took 4 years to recover all the way back to the all-time highs of 2007. There was certainly some hardship in those years which effected many people but as a buy and hold investor if you do not give in to panic, the market will recover. It has recovered from every war, depression, recession, natural disaster, you name it the market has seen it and always come back. This is the core of my belief in the market. There are always upward forces such as inflation and more people being born each day. Barring something catastrophic there is no reason to doubt the market over the long term.
After digesting that I want you to look at the ending price of SPY in December of 2013. Shares were trading at $184. Now, look at the price today even after the admittedly large recent drops and you will see it trading at $239. Imagine that you were a dividend investor like me in 2007. Yes, you saw a huge drop in the overall value of your portfolio for 5 years but you were reinvesting dividends during that entire time at both the top and bottom of the market. By 2013 you would have been doing much better than this chart indicates and the value of your portfolio overall would have continued to go up.
What to do with a down market?
Not coincidentally with the market being so far down I have taken calls twice today about whether it is a good time to invest in the stock market or not and how to go about that. I wanted to share what I said on both of those calls for educational purposes, just remember you are responsible for your own investment choices just so we are clear. These are the two things I talked about.
#1. Max that 401k. I have recently boosted my own investment rate to take advantage of the current market in my 401k. It should have been maxed a long time ago but that is something I was already working on, the market conditions just lit a fire under me. If you are not maxed your biggest bang for your buck will always be your 401k so start there.
#2. Assuming for some reason you have some after-tax money laying around that you want to put to work there are a variety of ways to do that. For the particular circumstance of someone who does not want to track or trade their investments I highly recommend using Betterment. Betterment is a robo-investor which is a platform that will ask you some questions, tailor a portfolio to your goals, and invest whatever money you deposit to them in a variety of stock and bond ETFs. I wrote about Betterment way back in 2014 when I first opened my account with them to see what they were all about. While some of that information has changed, the basics are still the same. It is a lower-cost option for individuals to invest almost any amount of money and get very broad exposure to both stocks and bonds. I still have an account with them and consider them a great option for those with little experience or interest in learning the market but with some disposable after-tax income.
This is not the End x2
While these past weeks have been very erratic and painful on the markets, this is not the end of investing. While it certainly is not the best possible outcome it is also not the worse. I fully expect the market to recover over time and reach even new heights. That said it is my opinion that this downturn is probably not done yet. The effects of the Covid-19 virus are not fully realized and on top of that it is an election year which can produce some wild swings by itself. As always I will be staying the course, investing over time, and watching my dividends grow.
What are your thoughts on the crash and the impending economic slowdown as areas begin quarantine? Leave your comments below, and Happy Investing.
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