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“The markets are crashing, this whole FIRE thing isn’t going to work!”
“The world is going to end! 2008 is happening again, we’re all going to be screwed!”
“A recession is coming! Should I sell everything in my IRA?”
These are just some of the comments, messages, and e-mails we’ve been getting lately. With the S&P 500 down 11% since the the beginning of the year and 18% from the peak, I can see why readers who haven’t been through a market crash would be spooked.
But here’s the thing about becoming FIRE.
You can’t be on FIRE if you can’t stand the heat.
Stock market corrections are perfectly normal and something you need to experience in order to become Financially Independent.
As Warren Buffett says “Be fearful when others are greedy and greedy when others are fearful.” While everyone else was panic selling and running for the hills in 2008, he calmly bought. As a result, he ended up making $10 billion during the financial crisis.
So before you panic, sell everything, and dive under your bed to hide from the upcoming apocalypse, know this:
Back in the beginning of 2018, with the S&P 500 P/E ratios at a high of 25, investors were complaining stocks were way too over-valued, and it wasn’t a good time to buy. Now, with the ratio at 15 as of Dec 21, evaluations are inline with the historical mean of 16, we’re returning to healthy evaluations and investors are getting a deal.
Tax loss harvesting:
One reason the markets could be falling during a time when traditionally the “Santa Claus Rally” happens is tax loss harvesting. Investors are taking advantage of the market correction to offset their capital gains and save money on taxes. As a result, there’s a spike in sell-offs, which isn’t indicative of an upcoming recession, but a tax play.
The unemployment rate in the U.S. is holding steady at 3.7%, the lowest it has been in almost 50 years. And since it’s been adding jobs steadily for the past 8 years, a strong job market and economy is why the Fed plans on raising interest rates next year. This is the exact opposite of a recession.
Now, I can’t predict what’s going to happen next year (no one can), but I can tell you what helps us sleep at night:
The Yield Shield
With our Yield Shield paying us around $35,000/year, we can almost live off the yield completely without withdrawing from our portfolio. So as we explained in previous posts, this is exactly why you need it in retirement to help you sleep at night.
With a cash cushion that supports our living expenses for the next 3 years, we don’t have to worry about depleting our portfolio during a market correction. Another reason why we can sleep soundly at night.
For those of you who are still working, realize that this is a great opportunity to buy into the storm (which is exactly what we did in 2008 to come out unscathed).
It’s a scary ass world out there, but we’re sleeping soundly because we know what we’re doing. And stay tuned to this blog next year, where we’ll tell you exactly how our portfolio performed in 2018, how much we spent, and the general health of our retirement in January.
Now, step back from your Vanguard/Questrade account, take your finger off the sell button and go spend some time with your families!
And those of you who want further assurance that the world isn’t going to end, read this post from The Godfather of FI himself, JLCollins:
We’ll be taking a break from this blog for the rest of the year (though we’ll still be answering comments). Happy holidays and see you next year!
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