We are in the midst of a fire sale, and if fear has been steering you clear of entering the market, read carefully.
Equities, whether we are talking index funds, mutual funds, stocks, ETFs or whatever else you may be investing in, are on sale. What does this mean? It means you can buy the SAME AMOUNT of equities for a fraction of what you were previously. What this also means is that you would be selling those equities for a fraction of what you may have bought them for.
If you think that COVID-19 will be the end of the stock market (and in turn, the entire US economy) I urge you to sell, sell everything. I want you to sell your house and your car and build a fallout shelter, also get your hands on some gold because I hear that would be the next currency. Get a crank FM radio and listen closely over the next several years as those stocks that you sold soar in price as the market recovers.
I’m not here to give financial advice, but I will lay out my game plan and my reasoning. Let’s do this in chronological order starting with the pre-bear market phase.
Step 1.) Invest heavily.
This is our default. In my family, we don’t just invest, we invest in excess. We invest in our own future by investing every dollar that we can.
Step 2.) Watch those investments drop 30% and more
We try not to watch it, but that same voice that makes us take a second whiff of the smell of skunk makes us open our accounts one by one and get ready for the blood pressure spike.
Step 3.) Find that inner calm
After seeing all of that red and going full clench, I open up my Headspace app which I highly recommend to the new investor (no sponsorships here) and breath. It’ll be okay.
Step 4.) Find a way to decrease my cost of living.
Now that I’ve gotten my blood pressure lower than my tire pressure, I realize I need to spend less than I do. “But where CPT CashFlow? Where do we cut this ‘excess’ spending?” Great question and my answer to you is, are any of us truly optimized? Is there nothing that we can cut? Maybe the cup of coffee every morning? Perhaps taking that Headspace membership and sticking to the 10 free sessions? Do I really need collision insurance?
Step 5.) Invest more.
Having cut the frivolous expenses many of us deem ‘necessary,’ we can deposit our freshly increased gap (see The Space Between for the deets on that) into our investment accounts. I personally use Robinhood because I find it to be the easiest to use on my phone and I don’t need all of the fancy graphs for long term investing (we’ll get more into that in a later post.)
We can loop back to step 1 with our new baseline of expenses.
Remember, unless you are within a few years of retirement (like less than 2-3), a stock market drop is GREAT news. If you haven’t been investing, that’s totally fine, start. Now is the absolute best time to start investing. Don’t wait, don’t look for the bottom. If you wait for the market to hit the bottom you will end up missing it and paying more, just start loading it up as quickly as you can. If you want to dollar cost average built-up savings, although statistically will decrease profits, that is okay, as long as you are putting it in at a significant rate (I would plan on it all being in an investment account within the year).
Times seem pretty dark right now, but there can always be a silver lining. If you can set yourself up now, future you will thank current you.
“Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold. When downpours of that sort occur, it’s imperative that we rush outdoors carrying washtubs, not teaspoons. And that we will do.”Warren Buffett