A reader reached out late last week and asked, “What do you do when the markets are in free fall?”
It’s a question that really captures the intersection between money and emotions.
I’m not an investment advisor, but I’m happy to share what I’m currently doing as the markets drop. Your personal situation may be different than mine so be sure to check with your investment advisor.
Before we jump in, here’s a recap from Yahoo! Finance about how significant the drop was last week:
US stocks cratered on Friday with the Dow Jones Industrial Average (^DJI) plunging more than 2,200 points after China stoked trade-war fears and Fed Chair Jerome Powell warned of higher inflation and slower growth stemming from tariffs.
The Dow pulled back 5.5% to enter into correction territory. Meanwhile, the S&P 500 (^GSPC) sank nearly 6%, as the broad-based benchmark capped its worst week since 2020. The tech-heavy Nasdaq Composite (^IXIC) dropped 5.8% to close in bear market territory.
The major averages added to Thursday’s $2.5 trillion wipeout after China said it will impose additional tariffs of 34% on all US products from April 10 — matching the extra 34% duties imposed by Trump on Wednesday.
My hyper-technical analysis: that’s not good.
Read on to see how I’m handling the market drop, how The Simple Path to Wealth helped shape my personal investing strategy, and how Die with Zero changed my perspective on how much to save for retirement.
Let’s dive in.
So, what am I doing with my portfolio right now while markets are falling?
Despite how bad it seems, this is not a difficult question for me to answer.
I’m not doing anything.
I invest in the stock market to help achieve my long-term goals. My two main long-term goals are to save for college and to save for retirement.
Each objective is so far away that time is on my side.
My oldest child is five-years-old. I have 13-14 years until she even begins college. We make regular contributions to a 529 college savings plan to pay for her education. We fully anticipate that the market is going to go up and down over these next 13-14 years.
As for retirement, I’ve still got decades in front of me. Same as what we just talked about with saving for college, I fully expect the market is going to go up and down many times before I retire.
Make no mistake, I don’t enjoy seeing my portfolio drop so suddenly.
Like everyone else, I don’t enjoy seeing my portfolio drop suddenly.
It’s not fun to read the headlines right now. My brain seems to jump to the worst case scenario. Maybe you do the same thing. It’s nice to have someone to talk to about it. Misery loves company, right?
This is one of the reasons why I only look at my portfolio once per month when I track my net worth.
To remind myself to hold steady during the down times, I think of a study that examined what would happen if an investor missed the 10 best days for the market in each decade since 1930.
As summed up by CNBC:
Looking at data going back to 1930, the firm found that if an investor missed the S&P 500′s 10 best days each decade, the total return would stand at 28%. If, on the other hand, the investor held steady through the ups and downs, the return would have been 17,715%.
These results illustrate how risky it would be for me to try to time the market. The last thing I want to do is miss the upswing. I have no idea when it’s coming.
But, time is on my side.
I’m going to do my best to be in the market when that upswing eventually comes.
And, I am confident that upswing will come. It may not be until years from now. That works for me and my investment horizon.
One other mental hack that’s helping me right now:
I’m telling myself that the market is on sale right now. How so? I can buy the exact same stocks today for less money than they would have cost even a few days ago. I do love a good sale.
In the end, no matter how bad things seem right now, I plan to continue making regular contributions to each of my investment accounts.
Since I’m investing for the long run, I’ll let the market do its thing while I’m off doing my own things.
Disclaimer: Your situation may be different. I am not an investment advisor. Do your homework and make the best decisions for your personal situation.
What is my personal investing strategy?
My personal investing strategy is largely based off of J.L. Collins’ exceptional book The Simple Path to Wealth. If you want a complete and easy to understand guide on all things investing, check out The Simple Path to Wealth.
If nothing else, it’s crucial to educate yourself so you can make informed decisions, especially in times of economic uncertainty like we’re in right now.
The Simple Path to Wealth is a great place to start when it comes to investing in the markets.
As Collins explains, benign neglect of your finances is never the solution. ReadThe Simple Path to Wealth and check out Collins’ website for a gold mine of information when it comes to personal finances and investments.
So, what is my personal investing strategy?
When it comes to investing in the markets, I’m about as boring as can be.
My wife and I invest primarily in index funds.
What is an index fund?
As explained by Vanguard:
An index mutual fund or ETF (exchange-traded fund) tracks the performance of a specific market benchmark—or “index,” like the popular S&P 500 Index—as closely as possible. That’s why you may hear people refer to indexing as a “passive” investment strategy.
Instead of hand-selecting which stocks or bonds the fund will hold, the fund’s manager buys all (or a representative sample) of the stocks or bonds in the index it tracks.
Why index funds?
The simplest way to answer that one is to direct you to the single greatest investor of our lifetimes, if not ever: Warren Buffett.
In 2013, Buffett famously instructed that after he dies, his wife’s cash should be split 10% in short-term government bonds and “90% in a very low-cost S&P 500 index fund.”
Good enough for Buffett, good enough for me.
For more on index fund investing, check out The Simple Path to Wealth.
To sum it all up, my wife and I are not active traders. We don’t seek out the newest, hottest stocks.
We’re pretty boring, actually.
We simply make regular contributions to our various investment accounts and let the markets take care of the rest.
As an example, for my daughter’s 529 plan, we chose a passive investment option that’s a mix of stock index funds and bond index funds.
Our portfolio automatically rebalances over time based on my daughter’s projected first year of college. Essentially, the closer we get to her first year in school, the more conservative our portfolio becomes.
We chose a similar option for our son’s 529 plan.
One other note for context: Keep in mind that my wife and I are real estate investors. We own five properties and 11 total rental units. Our real estate investments comprise a major part of our overall net worth.
How much money do I put towards each of your financial goals?
Between saving for emergencies, saving for college, and saving for retirement, there are a lot of options. In addition, you may have other short term goals, like paying for a wedding or a house. Or, you may want to invest in real estate.
So, how do you determine how much to allocate to each goal?
There’s no perfect answer here.
The first thing you can do is to spend some quality time formulating your version of Tiara Goals for financial freedom.
Then, let those goals inspire conversations with your people to help you make the best decisions. This is exactly how my wife and I came up with our financial goals for this year.
It also helps to attach specific targets to your financial goals, like we did when we estimated how much you should be saving to pay for college.
I went through a similar exercise with my retirement savings after reading Die with Zero by Bill Perkins.
As crazy as it sounds, are you saving too much for retirement?
In Die with Zero, Perkins suggests that many of us are saving too much for retirement at the expense of using that money to live our best lives now.
It’s one of the most compelling personal finance books I’ve read in a long time, and I highly recommend it. You can also learn more about Perkins and his journey on his socials.
Perkins is not suggesting that saving for retirement isn’t important. He’s saying that the hard data shows that most of us are over-saving.
When I read Die with Zero, I used an online calculator to estimate my projected retirement savings. As Perkins would have expected, at our then savings rate, my wife and I risked over-saving for retirement.
With that realization, I made some adjustments and am now paying down HELOC debt at a faster rate.
How much should you save for retirement?
There’s no way to fairly answer this question. Spend enough time on the internet, and you’ll get many different answers. There are just too many variables in play, like what kind of retirement you want and when you want to retire.
Perkins points out in Die with Zero that most of the advice out there encourages people to save too much money. You might agree or you might not.
I encourage you to read Die with Zero and make that determination for yourself.
At the end of the day, whether it’s saving for retirement or other major life goals, the most important thing is that you are consistently generating money fuel for your life.
Don’t stress yourself out by worrying about the perfect amount to save towards each goal.
Are you talking about your money mindset these days?
It’s never been more important to talk to your friends and family about your money mindset. You don’t have to talk numbers to help each other during uncertain times.
- Are you talking to your people about your money mindset?
- What types of conversations are you having to help get through these times of uncertainty?
- Would you recommend any books or articles that have helped you in the past?
Let us know in the comments below.
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