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Every time I think this decade can’t get any crazier, I keep getting proved wrong.
2024 was never going to be a walk in the park, but holy shit!
By now you’ve all heard that former President Trump narrowly escaped an assassination attempt by some nutjob at a rally in Pennsylvania. The investigation is ongoing, with updates seemingly every few hours revealing new details about the shooter, but regardless of how that goes, we’ve all just witnessed a pivotal moment in American political history.
I’m not a political commentator, nor is this a political blog. There are plenty of talking heads in the mainstream media reporting and commenting on this as more details emerge. However, as someone who’s lived through several supposedly once-in-a-generation calamities, I know that fear makes people do strange things, especially when it comes to their investments. Every time something scary happens in the news, investors will inevitably start nervously eyeing the exits, contemplating a stampede to cash until “the dust settles.”
Here’s why that’s a bad idea.
The Stock Market’s Fundamentals Haven’t Changed
A common refrain of market analysts is that “Markets hate uncertainty.” That implies that when something unexpected happens, stock markets inevitably crash.
There’s some truth to that, but it’s not the whole story. Stock prices are determined by two major types of factors: Fundamentals and Technical. Fundamental factors are financial or macroeconomic metrics things like corporate earnings, debt loads, interest rates, and stuff like that. Technical factors, on the other hand, are based on chart pattern analysis, investor sentiment, support/resistance levels, and other factors that are more a reflection on the psychology of other investors.
In other words, fundamental analysis tells you the long-term direction of the stock market, while technical analysis provides insight on the day-to-day gyration caused by, say, shocking news events like the ones we just witnessed.
If you’re a day trader, then the news that someone just tried to kill one of the presidential candidates will be very relevant to you, because the technical, and therefore short-term, factors surrounding people’s psyche just changed. A lot of people are much more fearful and anxious now than on last Friday.
However, the FIRE community who are generally investing for retirement are, by definition, long-term investors. Our job is to tune out the noise ad ignore news events such as this, when making investment decisions. After all, Donald Trump nearly being shot, while a pretty shocking news event, doesn’t fundamentally change how much money Apple or Ford Motors is going to report this quarter.
Let the day traders play off market momentum. But for us, the right thing to do is to sit tight and do nothing.
Every Catastrophe Feels Like This
As a millennial, it feels like we’ve lived through more once-in-a-generation world-changing events than should be possible, starting with 9/11 in 2001 all the way to this past weekend, and one of the benefits of getting older is that you gain perspective on things.
When something terrible happens, we all naturally feel shock and disbelief that what we’re seeing is actually happening. We feel hurt and anger at whoever we believe is responsible. And then we feel anxious and fearful at what comes next, coupled with copious amounts of doom-scrolling on social media.
But what we can’t do is allow that fear and anxiety to bait us into making any rash, emotional decisions when it comes to our portfolios. You can yell, scream, punch a wall, or whatever to deal, but don’t login to your trading account and hit “Sell” while you’re feeling this way. Because even though we’ve been through so many catastrophes in our investing career, this is what happened to the S&P 500 during this time.
That timeline goes right through 9/11, the Iraq War, the Great Financial Crisis, the rise and fall of ISIS, COVID, the invasion of Ukraine, the war in Gaza, and now this. Each time, it’s the same cycle of emotion as the news turns scary. But each time, society emerges battered, bruised, but still intact. And as a result, the economy keeps making money, bringing stocks up with it.
Being an Index Investor Means Betting on Global Prosperity
Every investment style has a thesis behind it, a core central belief that justifies every decision to buy or sell. If you’re a day trader, for example, you’re betting that you can spot deals before everyone else. If you’re a crypto bro, you’re betting that your coin is going to outperform the other guy’s coin.
Index investors that are invested in a globally diversified portfolio believe that the world, as a whole, is going to continue to prosper. We don’t stake out strong positions about any particular company, political party, or even country. We invest everywhere, because even when something bad happens in one part of the world, something good happens somewhere else, and over time the good outweighs the bad.
This past weekend’s events didn’t change that thesis.
A former president nearly being assassinated is terrible, and I don’t know what the fallout’s going to be over the coming months. But whatever happens, the world will keep on existing, companies will keep making money, and humanity as a whole will continue to prosper.
So that’s why I’m staying put and staying invested.
Conclusion
If you’re feeling exhausted at the news lately, you’re not alone. Our entire adult lives has been spent lurching from catastrophe to catastrophe, and it’s not getting any better any time soon.
But no matter how scary the news seems, the correct way to react from an investing standpoint is to ignore it, or if possible, keep buying as others flee. That’s the strategy that’s allowed us to survive past market crashes, and as long as a meteor doesn’t smash into the earth and wipe everyone out, that strategy will keep working.
Stay safe everyone. And stay invested.
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I don’t think this event is really the defining “catastrophe” that you made it sound like. It ‘s more like a non-event since nothing happened. The winner of the race had been apparent and decided way before it.
Have you thought about pivoting to energy stocks/ETFs, which are being turbo-charged by AI demands?
There were plenty of people freaking out in my inbox right after it happened, so that’s why I wrote this post.
As for energy stocks, not really. I’m an indexer, I don’t really believe we can predict how stocks will behave in the short term, especially for something of dubious benefit as AI. Tech companies are trying to jam AI-assisted products down our throats because they invested so heavily in it, but I have yet to hear a coherent argument of why it makes my life better in any meaningful way.
I learned not to panic from you, guys! And keep following it pretty good! Love your book and hope you write new one for Canadians in this current situation where rent and food prices going over the roof and how to keep saving.
Aww, thanks! I am working on a series of articles that addresses this, so stay tuned!
Berkshire Hathaway, Warren Buffett, sits on about 20% cash of total assets.
Maybe that is the insurance float, but that is his hedge in case you wake up one day and the market is closed, and he has said that. He has even said something could happen to close the market for a year, so you have to be prepared for that with real world businesses and cash.
If keeping 20% in cash is good enough for Buffett, its good enough for me.
He’s a smart cookie, that Warren Buffett fella. What the stock market does in November is a huge source of uncertainty, so that should be…let’s say…interesting.
Well stated!
I am ashamed to be an American. Trump is a horrific choice based on his mental illness, poor decision making and his involvement with Project 2025. Poor Biden is in a tough situation and I can’t imagine he really wants to be president given his circumstances, but knows he is our only hope for democracy. We look like fools to the rest of the world. Nonetheless, I hope whatever is about to happen goes quickly and I am looking forward to 2028. If it goes badly, Canada may have a new citizen as I live very close to the border. Thanks for the reminder to not freak out – up and downs are expected and we will get through them.
Yeah, the party nomination process has been interesting to watch. It’s like a real life reality show!
It appears that the democrats have just pull a coup d’etat and pull Biden out of power, but there nothing to see there right. I’m sure you feel Biden has done a wonderful job with everything he’s touched. Please reply with his accomplishments in the last 4 years.
So Trump feels inevitable now to many. I don’t know if this is true. What I am still focused on is his pledge to be a dictator and project 2025’s roadmap to make it come true. As a US citizen I’ve never thought a ton about foreign investments until now. But my grandfather grew up in Germany. Even in capitalistic economy, if you are a member of a disfavored class then your assets can be confiscated by a dictatorial state. What are the sound foreign investment funds out there? How do I insulate my accounts from a dictator? These are the questions in my mind now. Not panicking. Just creating contingency plans.
I continue to advocate for investing in a geographically diversified way, so splitting up your equity allocation up between the US, as tracked by VTI, and the rest of the world, as tracked by VEU, would be a good idea.
It seems pretty clear that Trump will be the next President of the United States in 2025. I think it will probably be a net positive for Investors. But, of course, nobody ever knows the future.
After watching the debate, I think you’re right. If the Dems continue to nominate Biden, Trump will probably win.
Oh and I read your article on “What a Trump Presidency Means For Your Finances” on your blog. Very well-written and thought provoking!
I totally get the need to stay in the market, but I was hoping that I see some advice about asset allocation here. If it seems likely that the fall of the US Empire will happen in our lifetime, I wonder if my allocation should not be 33% in the US market. Thoughts here?
This has been on my mind a lot too. I think the solution is to adopt a dynamic style of investing. I’ve recently switched my portfolio to Dual Momentum which has the ability to divest from US markets if they underperform relative to global assets.
This type of market timing is pretty robust (as opposed to something like stock picking or identifying tops and bottoms) because the momentum effect has persisted for centuries in all asset types.
My current equity allocation is evenly divided between Canada, US, and EAFE, but if I weren’t Canadian, I’d be evenly divided between US (VTI) and World ex-US (VEU).
I wouldn’t bet too strongly against the US though. Even if the US empire goes from #1 to #2, they’ll still be a significant player in the world economy no matter what.
The key takeaway is that man-made+natural disasters and catastrophes have happened in the past and will continue to happen in the future. After all, humans live on earth. Dictators (including wannabes) will come are go. Autocracies and democracies will rise and fall. Some economies will crash while others will prosper. However, instead of panicking, staying put in the stock market for the long term will bring its own rewards. Building a cash cushion to handle about 3 to 5 years of annual expenses will help ride out any down periods in the stock market, especially if stocks are the primary assets being used to fund one’s living expenses.
Yes, exactly! “What has happened before will happen again”, and “This too shall pass” are mantras that I repeat everytime something like this happens.
I’m just about to open my first brokerage account, after saving for years to do it. At this point in the year, what would you do with $100K when it comes to index funds? Dollar cost average? Wait till the election is over? Any advice on how the market has acted/reacted in other US Presidential election years?
I’d DCA, aiming to invest half of your cash this year and half next year after the election. Don’t read too much into how other presidential years have acted, because this election is unlike any other in recent memory in terms of sheer cray-cray, so DCA is the way to go here in my opinion.
I’ve always thought you were smart, but your reference to the Darkest Timeline made me realize you also have exceptional taste.
I miss “Troy and Abed in the Moooooorning!”
The only country that could compete with the US is China, see those wonderful products they make and their hard working, brain using and super good attitude workers, no country has that massive amount of human resources. Yet rich Chinese people still invest in the US. US is rolling downhill real fast from its peak, but it still has massive natural resources and people won’t starve even if the government totally falls apart, and as complex as it is now, even with those clowns as presidents, the complex system would take a big hit but probably will not collapse. That is different from Europe, Japan or even China, which rely on stable global markets and has less natural resources. You see Russians these days, with the war going on for 2 years now, huge inflation, etc., but they still have bread, and people are not starving so the dictatorship remains, and life goes on, of course with lot of misery. If the US turns into crap, the rest of the world won’t be much better either, except for a few spots. By that time, investment may not be on the priority list but survival. So no need to worry now!
I think a global catastrophic event would be a hacking or a major mass computer crash like the one that just happened but bigger that would prevent the stock markets to open for days or worse, make the stock ownership untraceable. That would be the darkest time
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