December 2018

Most of the time, being really rich is great (not that I’d know, but I assume).

Right now, I’m thanking my unlucky stars that I wasn’t fabulously wealthy when I took a sudden interest in investing $1,560 of fun money in a few Vanguard funds.

Because had I been really rich, I probably would be down a lot more money than I am right now (because I would’ve invested a lot more “fun money”).

I sure am feeling it in my 401(k), though; I track that balance month-over-month since Southwest matches at a very generous rate and it used to climb a lot faster than it is right now in my aggressive allocations. This is definitely not my "fun money," it's a sizable portion of my income that I absolutely need someday. 

In short, the stock market is in a period of ‘corrections.’

The NASDAQ Composite Index hit an all-time high of 8,109.69 on Aug. 29 of this year, and is now—and this is an industry term—in the shitter. 

Here's a blurb from an awesome daily finance newsletter I read that paints a nice, snarky picture (excerpted on Dec. 21):

“It was another face palm-inducing day on Wall Street, where volatility has become as commonplace as Patagonia vests. Let's survey the damage.

• The S&P 500 is now at a 15-month low, and member companies have shed a combined $2.39 trillion in market cap...just this month.

• The Dow has now lost more than 1,700 points in the last five sessions and sits at a 14-month low.

• The tech-heavy Nasdaq flirted with bear market territory (down close to 20% from its recent high).”

Rather than trying to get into the nitty-gritty stuff, I want to talk about how I’m feeling about money and investing right now in the midst of this low period, and the implications for someone’s hypothetical impending retirement.

A big market drop when you’re 24 and have a couple thousand dollars invested is mostly a ‘shrug it off’ annoyance. Who cares? You don’t need this money for decades. If you just started investing this year like me and dipped a proverbial toe in the water, you might feel a little discouraged after seeing things reach an all-time high then drop lower than you started.

There I was: optimistic, ready to roll—wanting to cut myself a slice of that free money pie. And for awhile, it seemed too good to be true. I was convinced investing was magic and I had found the secret to free money).

That was (mostly) it's peak for me. A nearly 11% increase. Alas, now we're here.

Wah. $108 (almost 7% down) for the year.

UPDATE: It's Dec. 26 and I'm down to $1,430.61, -8.29%. On Christmas Eve at the low point, I was down almost 13%.

Like I said, this isn’t enough money to really care about. It’ll pick back up. I’m not concerned. But it definitely woke me up to the reality that, had I invested my entire net worth in the market, I’d probably be a little more rattled.

It made my guaranteed 4% APR interest checking account with the credit union look a whole lot more attractive, because that account has paid out hundreds of dollars in interest over the last few months.

It’s almost akin to gambling—wanna go for a potential 8% (or higher) return with a risk of an equivalent loss (or worse), or go for a guaranteed 4% return? This is an oversimplification that depends on a LOT of factors like allocation and timing, but I think the analogy stands.

That’s the benefit of being young—timing doesn’t REALLY matter. You know you have all the time in the world (practically speaking) for things to rebound, if you’re saving the investments for later in life.

But if you’ve been planning to retire in a month or two and you’ve got hundreds of thousands (potentially millions) locked up in the market and there’s a big 8% dip with no recovery in site…well, that looks a little different.

It can be risky stuff, depending on your allocations and approach. Overall, it’s probably a safe bet to place, and absolutely better than saving money in low- to no-interest savings accounts, but nothing’s ever a guarantee. Average returns—even if they’ve caused your investments to grow by leaps and bounds for decades—can be wiped out in a big market crash. 

I know people personally who lost hundreds of thousands of dollars in 2008-2009 and took years to recover (I remember in middle school my parents told me, "You can go anywhere you want for college! Even Harvard! We've been saving for college for years!" and after 2008, it was, "OK, pick a state school and get a scholarship,"). Roll tide.

The consolation is that they likely wouldn’t have had that much to LOSE in the first place had they not played the market, but timing matters A LOT when you’re going into retirement and banking on that nest egg being intact.

So while things are shitty right now, that means it's the best time for young people to BUY, BUY, BUY diversified index funds! They're cheaper than they've been all year, right now. Like a  Black Friday sale on stocks.

And then, for the love of God, don't check your accounts for a few months. Let it ride.