Do Not Panic: Thoughts on Dealing with a Falling Market, High Inflation, Rising Interest Rates, and Other Financial Perils

You probably know that I am well ahead in posts for ESI Money.

We are in the middle of “Millionaire Months” which I did last summer and am doing again. In addition to that, I’m writing myself for the site, in the Millionaire Money Mentors (MMM) forums, and a few side projects you’ll hear about if I ever get them completed.

My goal is to have five months of posts completed when I leave for The Villages in late December. That way I can do very little writing when I’m there and just gorge out on pickleball. Hahaha. Plus I’ll have a month buffer so when I get back I don’t have to play catch-up immediately.

So today I’m working on posts for the end of November/beginning of December — right on track of where I want to be.

That said, the current market conditions made me want to do a special Saturday post just to encourage everyone. We’ll get to that in a minute, but let me begin with where I am so you know we all are in similar boats.

As of today, I am down just about $900k in net worth since my high. So that’s a big ouch.

I’ve been plowing in extra monies here and there, buying some more dividend stocks where it makes sense.

And while the financial world seems to be falling apart with high inflation, rising interest rates, and a plunging stock market, life is still fine, really.

Of course it would be a lot better if those things weren’t happening, but in the end all these are simply expected and regularly occurring events in our economy.

That said, I know many people are very nervous and worried about the economy, their personal finances, and life in general.

So I want to share several thoughts that will hopefully encourage you during this time as well as reinforce some things we’ve talked about over the years that are very meaningful these days. I know that all these events (stock market, inflation, interest rates) are concerning, but my main focus will be on the stock market as it seems to be the one causing the majority of concern (from the emails and comments I’m receiving).

We’ve Been Here Before

Yes, we have been here before. Not these exact same conditions, but certainly we’ve experienced market drops before. If you haven’t, then congratulations, you are getting experience that many of us have lived through time and again and come out of better off. For example, 2008 wasn’t a great year, was it? And March 2020 was a bit of a downer too, right?

But we recovered from those and were much better off — at least those of us who didn’t panic and sell. I have one relative who pulled his retirement funds out of the market at the bottom in 2008 and never reinvested them. That is a killer!

So while things are rough in the market, we all know that better times are ahead. Those better times might occur in a month, a year, five years, or ten years. But if you stick it out (and even keep investing more), history shows that you will be rewarded in the long term (10-20 years or more). So don’t panic, don’t give up, and hold the course.

Now if you don’t have a long-term investment horizon (like 10 years or more), then you probably shouldn’t have a large amount of stocks, especially if you really need the money in the short term. That’s a basic tenet of investing — the market is for long-term investing. So if you put money in that you’ll need in three years, that’s not investing, it’s gambling and hoping things do well in the short-term (which is anyone’s guess what could happen).

If You’re Stressed, Check Your Asset Allocation

If current events are stressing you out, there could be a few reasons for that.

The first is what’s noted above — not realizing we’ve been here before and things will get better if not sooner, at least in the long term. If that’s the case, simply review history and be encouraged by it.

The second is that your financial strategy might not be right for your temperament. I would suggest googling “asset allocation”, reading a ton of articles, and reconsidering if you’re really investing the way that makes sense for your goals, personality, etc.

The third is the news. Stop watching it. The news is not the news we had back in the day. Today it’s entertainment and business mixed and their key weapon is stirring up fear. Do you want to make yourself fearful every day? If not, then STOP WATCHING THE NEWS! Besides, those guys don’t know anything worthwhile anyway and even if they did, you can’t personally impact these macroeconomic issues so why watch and stir yourself up about them? Sure, be aware of what’s going on, but five hours a day of Fox News, CNN, CNBC, or anything else is not good.

Have Some Perspective

We all need to step back a bit and have some perspective on our net worths.

For instance, one way I could look at things is as follows:

“Oh no! I’m down almost $1 million! The world is ending! I’m going broke!”

Another way to look at things is this:

“I retired with more than enough. And since then, my net worth is up over $2 million! That’s amazing!!!!!!”

In other words, if you have been investing for 5 or more years, it’s likely that you’re up — and you’re up big time.

So if it helps, look at where you started compared to where you are now and you’ll feel better.

Yes, we are all down from our highs, but that’s a short-term number. Look at your long-term success and growth and odds are you are doing well.

There is Opportunity in Chaos

A famous Warren Buffett investing quote goes as follows:

“Be fearful when others are greedy, and greedy when others are fearful.”

To this I’ll add a quote I recently saw on Instagram:

“Everyone wants to buy low and sell high, until it comes time to buy low.”

Hahahaha.

The point of both of these are that there are opportunities when things look tough.

Here are some examples of this from my own life:

• In the 2008 decline, I kept investing and even cut spending so I could invest MORE. I invested all the way down, losing thousands sometimes in a matter of days. But those purchases have done very well since then and now form the core of my net worth.
• Shortly after that, when real estate was in the tank, I bought my rental properties. They returned 10% plus income for all the years I owned them and then I sold them for 2x+ (after taxes) what I bought them for. It was very nerve-wracking doing something I had never done with so much money when the market had just crashed, but this turned out to be one of my best financial moves ever.
• In March 2020, I bought my dividend stocks which have performed quite well. Even with the recent downturn, I’ve almost doubled my money on the growth side (plus received income). And since things have turned south, I’ve been buying more as I like more income. More on that in a minute.

There are other examples, but you get the idea. If you can, now might be the time to go a different path from the masses. Of course, it may not as well — no one knows. But if you have extra cushion and can afford more drops if it doesn’t work out right away (or ever), you may want to consider your next moves and zig while everyone else zags.

Time for the S to Shine

In what seems like an uncontrollable situation, there is one big thing you can control: your spending.

Now might be the time to pull back a bit, keep more cash cushion, and/or invest in opportunities.

Most reading this have discretionary spending that can be used as a safety net or opportunity fund, so consider your spending if you want to create a cushion.

If you need help saving money, a YouTube channel my wife and I have been enjoying is from “The Deal Guy.”

He’s funny, entertaining, and has some GREAT tips. Here are a couple of his videos we’ve recently enjoyed:

Welcome to a Stock Market Sale

If you’re young(er), this is a time for you to put the pedal to the metal! Stocks are on sale!

If I was 30 years old, I would be investing like crazy and looking for even more funds to put in.

This goes along with the quotes above — now is the opportunity time (though it still could go down, just FYI.) This is when you sow the seeds for tremendous growth over the next 15-40 years.

As noted above, this is what I did (though it often left me sick to my stomach while doing it as I’d invest only to see it drop the next several days) and doing so has made a HUGE difference for us financially.

Remember Margins of Safety

Do you have any (or several) margins of safety?

The more of these you have and the stronger they are, the better off you’ll be (especially for those close to or in retirement). If you missed that post or have ignored it in the 5+ years since I wrote it, you may want to revisit it and adjust your plans so the next time there’s a downturn (and there will be a next time) you are better prepared.

As I noted above, my net worth is down BIG TIME.

But am I panicked? No. And one reason is that I have several margins of safety (none of which I have had to use, BTW.)

But they are there if I need them.

One huge reason that I haven’t needed them is…

Income is Amazing

Income is very, very nice when everything is going to pot (especially in retirement).

I get flack now and then when I suggest real estate syndications, dividend funds, etc. as someone will comment that “index funds are just as good for income — all you need to do is invest in them and sell when you need income.”

Well, that’s a great theory and works well when markets are going up, but how’s that working for you now? For example, my dividend stocks have lost a lot of value recently, but they have not stopped paying dividends. So as long as the income keeps flowing, the underlying asset value is immaterial since I don’t want to sell anyway.

Same thing with real estate (though probably better since rents are increasing). If your real estate is cash flowing, the value of that real estate doesn’t matter as long as you don’t need to sell. The income just keeps coming in.

Now, how’s that “sell index funds for income” strategy performing? I have the same income I had two months ago while someone selling index funds is having to sell many more shares for the income they need.

I’m not saying that one of these options is better than the other since they can both be “better” based on the circumstance. In fact, I think they work best together — helping you invest for both growth and income.

But…the income portion is very nice and handy when the market is in turmoil and/or dropping. That’s why I’ve been saying that I favor an income and asset withdrawal plan for retirement to simply asset withdrawal alone. It’s just a softer landing in many cases (including when negative events like the ones we’re in now occur) and income covers many, many issues.

Mentors Can Help

This is the time when having a group of people around you who have been there and done that can help tremendously.

And that’s one of the reasons I created the Millionaire Money Mentors.

I had not planned to let new members in until later this year, but if you need some reassuring and mentor guidance in these tough times, I’m willing to let new members in at almost half price of $299 a year.

I’m not going to do a sales page or big selling effort, but if you want to join simply email me and I’ll work with my team to get you in as soon as possible. FYI, I’ll only keep this offer open through the weekend, so act quickly if you want it.

If no one wants in, that’s fine too. I just wanted to provide another opportunity for anyone who might need it.

And to help out now without having to join the group, I asked the MMMers to offer their thoughts on the current financial situation — what guidance would they give someone who was nervous with current events being what they are.

Many of their comments were the same as mine above (no surprise there), but I’ll share them anyway because they will add extra perspective and wisdom that I think is needed.

Here they are (I have separated the comments so you can see where each begins and ends):

—————————

The stock market is like anti-gravity: what goes down must come up. At least historically speaking. And maybe not crypto.

—————————

I think a key thought about your investments is that you don’t need all that money today. Speaking primarily to retirees or those close to retirement. Some of the money you have saved you won’t need for 10, 15 or even longer, 30 years.

So what happens in the next few weeks or months isn’t likely to have a huge impact on your lifestyle that far into the future. More than likely you’ll have more money than you do today. On average markets go up 2 out of every 3 years. This is normal even if it’s uncomfortable.

—————————

A good time for tax loss harvesting to lower tax liabilities.

A good time for Roth conversions as they are on sale.

A good time to continue to remove the emotion and DCA and reaffirm if your equity position(s) and bench marks allow you to sleep at night.

A good time NOT to sell as you will miss the 6-8 days a year that sky rocket back up. We can’t time the market twice, let alone even once as its a fool’s game.

A good time to study more personal finance topics as knowledge is confidence on how to swallow and digest the markets ebbs and flows. We can’t navigate what we don’t understand.

Since we never sell, we have not lost a thing.

Do not look at the stock market activity for one full quarter. You might surprise yourself with more internal peace.

A good time to dance and celebrate. My wife gets excited about bogo purse sales. Don’t buy the purse today, wait 10 years and get 10 free instead! That also goes for tools ya know. 😉

Closing thoughts: Fear and greed are the opposite of trust and generosity. I trust that I will continue to give to those who are less fortunate as us.

—————————

Consider this graphic.

—————————

The first thing that comes to mind is times like these are WHY you want to be financially independent/strong. It’s not all about “retiring early”. For me it’s mostly about not having a worry in the world when stuff like this is happening.

—————————

Over time, the world is getting better and better. When you invest, you’re saying that you want to contribute and benefit from the future growth of the world economy. I’m a bleeding-heart optimist.

I always learn more from pain than success. Bear markets are lovely teachers. Bull markets resemble grade inflation. Once the pain gets sufficiently severe, I can honestly know whether my asset allocation is too spicy, bland, or just right.

I am buying as much as possible in stock index funds. I try to run into the store when its items go on sale.

I try to remember that the laws of money and life don’t always match. My most significant money mistakes are because I did something (sold too early, sold too late, bought individual stocks even though I know I am more comfortable as an index investor). My most significant life mistakes are because I did not do something (study abroad, thru-hike the Appalachian Trail when I was young and had few attachments, stalled for years on the adoption process). Forget about money and live your life.

—————————

In all such instances I apply my Rule no 1 “ Don’t panic” – seriously it doesn’t help, you do crazy things – and don’t feel any better if you do panic.

—————————

I could blather on for a while but I think I’ve said enough. I hope this post has given you some comfort and/or provided some things to consider that will make your financial life (and just life in general) better through these difficult times.

If you have comments/questions, leave them below. I do not give personal financial advice (so don’t ask), but if there’s something you need or wonder and I can help, I’m available to do so.