Ever since starting this blog, I’ve been pretty active on Twitter. In fact, before starting it, Facebook was probably my main social media platform. Nowadays, though, it’s been all about “the Twitters.”
Mostly that has been for the purpose of engaging with other bloggers and to promote this one. Although I will admit, Facebook doesn’t interest me nearly as much as it used to.
Nevertheless, because I’ve used Twitter for blog-related things, I have engaged with a lot of personal finance bloggers. And for the past several months, people have been talking an awful lot about their investments taking a hit.
They aren’t alone, either. During these tumultuous months, my net worth has actually gone above and then back under $40,000 three times. Yeah, it hasn’t exactly been fun.
Stories about a struggling stock market are all over the web. MarketWatch recently posted this article with evidence that we are now facing a bear market. From the article:
At its late-November low, the S&P 500 SPX, -0.02% was more than 10% below its all-time high of 2,390.75, where it closed on Sep. 30. If we rely on the semi-official definition of a bear market as a drop of at least 20%, the stock market at that point was already halfway there.
But as Claudia pointed out in a tweet, it’s easy to see that the market has gone up significantly over the past five years. Things may have seemed volatile as of late, but that is just the nature of the beast.
It’s Not All Bad
Although we have been seeing some drops lately, even just this year has seen plenty of gains:
Looking at the above graph, it’s easy to see why people have been groaning. We experienced consistent growth from late June until early October. Since then, though, things have been quite volatile.
It’s also crystal clear why my own net worth has looked like the puck on one of those “test your strength” carnival games recently. You know the one.
What Goes Down Must Come Up
For me, this is one of the most fundamental principles when it comes to investing.
One thing I will say is that there are a lot of global issues that make things uncertain right now. Perhaps even more uncertain than usual. Protests in Paris, the potential for Britain to leave the EU, and our trade war with China – just to name a few.
But let’s not forget that the stock market has seen worse. Much, much worse.
I don’t think I need to remind anyone here that the Great Depression is a thing that happened. Of course, despite being the most disastrous time in the history of our stock market, there have been plenty of other crashes and recessions.
And yet, despite all of them, the market eventually recovered. And then went higher than it had been previously.
While it can’t be guaranteed that this trend will continue forever, I always like to ask: what is the alternative? Leaving cash under a mattress? If you feel so inclined, I’m not going to stop you. But I think investing is still the best place to put our money for the foreseeable future.
Fluctuation is Normal
The fact of the matter is that in the stock market, fluctuation is perfectly normal. After all, if there were no fluctuation, there would be no return. That’s what bonds and savings accounts are for, in addition to our checking accounts.
And if the fluctuation is too much for you to stomach, I would absolutely recommend either:
- Allocating more of your portfolio to bonds
- Lowering your monthly contributions slightly and putting more in savings instead
…or both, of course. The point here though is to reduce your risk rather than to stop investing completely. Do what you must, but there is no reason at this point to believe anyone should stop investing.
If you are at or near retirement, then certainly your portfolio should be more conservative. But that doesn’t mean you should stop investing entirely! There are several calculators which can help you determine your allocation based on your age.
But even the most risk-averse and soon-to-retire scenario using the above calculator includes 30% stocks.
You’re More than Numbers
So far I have been reassuring you that the sky is not falling when it comes to the stock market. Maybe that’s because I’m trying to butter you up. Maybe it’s because I genuinely believe. Maybe it’s both? Yeah, let’s go with that.
Either way, the fact is that we’re more than numbers. There are a lot of things we can’t control – especially when it comes to our investments.
At the end of the day, most of us have little to no power over things that can influence our investments, such as who is currently in office, which businesses do well, and so on. Certainly we can’t influence all of these factors.
While that may sound pessimistic, I’d say it’s generally true. Sure, we can do things like vote and buy only the products we support. But any one person is fairly limited in how much they can influence the big picture alone.
That isn’t really a bad thing either since that is the way a democracy is intended to work. I don’t want to delve into politics and how some people may have more than their fair share of power, so I won’t.
I will just say that in general, most of us only have so much power. And in general, this is a good thing. We’re a democracy, not a dictatorship.
But just because you can’t necessarily change things for the better does not invalidate you. Just because your net worth declines does not make you less of a person. It makes you human – a human who is subject to the same market forces as the rest of us.
My Recommendation: Stay the Course
Many no-nonsense investors recommend checking your investments as infrequently as possible – perhaps to rebalance yearly or quarterly. However, checking more often than that can induce human emotion, which tends to be bad for investing habits.
This is why I say your net worth is not your self-worth.
Your portfolio is just a bunch of numbers. It’s true that you should do the aforementioned rebalancing, but other than that, the less attention you pay to it, the better.
I have regular contributions going in automatically from every check. Certainly meet your full employer match, and save as much as you can – but beyond that, it’s not worth thinking about too much.
If you’re doing that, you’re doing what needs to be done. I am trying to get better about this. But I know that until I am officially FI, I should stop checking my net worth so often.
Because as I said, your net worth is not your self-worth.