Return of the Bear Market: Are You Ready?

Wanderer
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On Thursday, March 12, the US stock market entered a bear market.

US stocks enter bear market territory after Trump’s travel ban

~~CNN

A bear market, which is defined as a 20% drop in the stock market, officially brings to an end the longest bull market the world has ever seen. And it was caused by this.

President Donald Trump said Wednesday he was sharply restricting travel to the United States from more than two dozen European countries, a drastic step he framed as an attempt to contain a spreading public health crisis that has engulfed his presidency.

~~ Trump says he’s suspending travel from Europe to US, CNN

Donald Trump’s sudden announcement that he was unilaterally banning all flights from Europe sparked a massive 2353 points drop in the Dow. This was the single largest point drop in the Dow’s history, easily eclipsing the previous record of 1464, set only two days previously.

Thursday was also, more importantly, the single largest percentage drop in the US stock market since Black Monday in 1987. It did rebound the next day, but that doesn’t change the fact that the bull market we’ve all been enjoying in the stock market is officially over.

So here we are, in a technical bear market. One of the longest running and most persistent criticisms of the FIRE movement is that the only reason all of us have been able to retire is because we’ve been in an almost endless bull market for the past decade. So were they right? Is our retirement screwed? Before we answer that, let’s delve first into how we got here. 

Why You Should Worry

In short, COVID is now a global pandemic, and that’s a big scary thing. The ease of international air travel means that diseases can spread across the world in a manner of days, and once one person has it, local person-to-person transmissions means that local outbreaks start quickly. If the case isn’t quickly caught and quarantined, one case becomes two, then two becomes four, and pretty soon it starts to spread out of control.

Of particular concern are those of us with underlying health conditions, or those of us who have elderly parents. All of us should be practicing frequent hand washing, practice proper sneezing techniques (into your elbow, not on your hands), and avoiding large gatherings. But if you’re in a higher risk group, or your parents are in a higher risk group, you have to be even more vigilant.

Luckily, children have mostly been spared. And for those of you who are struggling to keep you kiddos occupied at home due to school closures, here’s a helpful article from our friend, Jennifer Miller, a WorldSchooling mom.

Why You Shouldn’t Worry

So with that being said, is this a potentially world-ending event that will bring about the apocalypse and the end of civilization as we know it?

In short, no. Not even close.

I must admit it’s a little strange seeing how the US and European governments are reacting to this virus. We’ve been travelling in Asia since the beginning of the year, and reading the news from Western media outlets feels a little like being in a time machine. Because everything the West is feeling now, all the fear and all the panic, that was what it was like being in Asia two months ago.

Back in January, when this coronavirus was some remote and distant problem for the West, we were watching as the virus spread right to our doorstep, and the panic back then was so thick we could feel it all around us.

The biggest shock to me watching all of this, however, is in the fact that despite the US and Europe having a full 2 months heads-up to prepare, those governments still got caught by surprise. No test kits or masks were stock piled, no contingency plans were drawn up. In fact, as of right now in the US and the UK, there’s massive confusion about who can get tested and whether test kits are even available. The situation is identical to what was going on in Wuhan in early February.

However, that comparison is the biggest reason why you shouldn’t worry about the world ending. Because in Asia, the coronavirus has been brought under control.

In China, the government made a huge mistake when they suppressed early reports about the disease, but you might be surprised to hear that life in China has mostly returned to normal. Quarantines have been lifted, business have been reopened, and people are (cautiously) returning back to work. New cases in China have dropped to about a dozen a day, and are pounced on right away to keep the disease from returning.

Other countries in Asia like Thailand and Vietnam are also dealing with it rather well. And Singapore’s response was so effective that it’s being hailed as the gold standard for other countries to replicate.

The most interesting data point in Asia is in South Korea. South Korea got hit hard by the coronavirus in February, and their government responded by ramping up their testing game big time. Out of all the Asian countries that have dealt with this, South Korea tested the most people per day than any other, even going so far as setting up drive-through testing stations where people could go get tested on their own and have results back in minutes.

Because of this, South Korea has the most accurate mortality data on this disease out of everybody. And what they found was that the actual mortality rate is not 10%, or even 2-3%. In fact, it’s less than 1%. If you’re below the age of 50, it’s somewhere between 0.1% and 0.4%. Oddly enough, if you’re below the age of 10, the mortality rate is 0%.

So while COVID feels like a big scary thing right now to readers in the West, what we now know in the East is that it can be contained. If Western governments simply copy what worked in Asia (and especially South Korea and Singapore), this will all be over in 1-2 months.

Does FIRE Still Work in a Bear Market?

So going back to original question: Does FIRE work if you’re in a bear market?

In short, yes. But it isn’t going to be fun.

CNN has a gauge of investor sentiment on their money page that oscillates between “Extreme Greed” and “Extreme Fear.” Right now, it’s pushed all the way to the left indicating “Extreme Fear.” But my own personal fear level? Close to zero.

Our Yield Shield is in place, and churning out dividends and interest exactly as it was designed to. We have our 3-bucket Cash Cushion strategy (which we describe in our book Quit Like a Millionaire) full to the brim and ready to provide us with years of buffer. And despite all the craziness with the travel industry right now, we will always have Geographic Arbitrage, which we can use to reduce our living expenses without sacrificing a thing whenever we need.

I recently put our portfolio and forecasted spending into FIRECalc, and it spit back a success rate of 100%. I rather like those odds. So we are good to go, and ready to weather this financial storm however long it lasts.

And to people who are still building their retirement portfolio, this is gut check time for you.

Our friend and mentor J.L. “The Godfather” Collins has this quote that I absolutely love, which is that you don’t know what kind of investor you are until you’ve lived through your first market crash. I’m going to add to that sentiment and state that you don’t know if you have what it takes to pull off FIRE until you’ve lived through your first bear market.

FIRE has been gaining a lot of attention in the news lately, and as a result a lot of people have heard about it and want to do it. But the truth is, most of them won’t be able to. Because right now most of them are freaking out because of the news and pulling their retirement savings into cash.

I get that it’s scary. As we wrote in our book, the experience of investing during a market downturn is positively terrifying. Hitting the buy button when everyone was screaming the sky was falling in 2008/2009 was the scariest thing we’ve ever had to do. But we did, and it worked. That’s why now when I log into my account and see that my balance just dropped by over $100,000 in a single day, I don’t freak out. Instead, I open up my spreadsheets and try to find cash to deploy.

Millionaires are made during bear markets. Because if you can ignore the screaming news chatter and calmly buy into the storm, you’re going to become a millionaire when the next bull market returns.

Do you have what it takes to achieve FIRE? Well, thanks to this coronavirus, you’re about to find out.

 


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75 thoughts on “Return of the Bear Market: Are You Ready?”

  1. Unfortunately, it’s going to get worse before it improves. The US was slow on the uptake and screwed up on testing BIG TIME. Now, everything is closing and the economy is grinding to a halt. Life is going to be very different for the next few months.
    Hopefully, the curve will flatten soon or else this crash is going to be worse than 2008. The US healthcare system is completely screwed up. Lots of people will go bankrupt this time. IMO. Lots of families don’t have the savings to ride out 3 weeks of no income.

    1. in addition, fatality rates in the west can entirely be 10% or even higher due to the tiptoeing/conflicting messaging around the need for physical distancing and thus far in the US, incomplete shutdowns. our infections will be much higher and our hospitals are and will be overwhelmed.

      there is research now that children are indeed affected, some drastically and there ARE deaths. 50% of french cases needing extensive ICU/respirator/ECMO are under 60, no/few comorbidities. 15% of italian ICU/respirator/ECMO cases are under 30. i anticipate this will be higher in the US.

      best practice is to act like you’re already infected and so is everyone around you, to actually level the curve.

      information/data from epidemiologists, virologists, infectious disease experts: https://twitter.com/i/lists/1220869298631200769

  2. Thanks for writing this Wanderer. This is a thoughtful, rational and calming article – something sorely needed amongst the panic inducing headlines you see everywhere here in the US. Good to know that we are following in the footsteps of other countries who have gone through this recently and are now coming out the other side into the sunshine.

  3. Does the sense of security come from confidence in the market over however long it will take to recover or from the side income which basically covers all your expenses and then some, i.e. really Coast FIRE?

  4. Thanks Wanderer. I’m a pretty rational and calm investor. However, it is nice to hear a rational thought process from someone else during times like this.

    I will say, however, it does concern me how dramatically the market swings at every press conference or tweet these days. It makes following sound investment strategies a bit more uncomfortable.

    We were planning to launch our retirement this October. Before the bear market, we were working toward a portfolio and geoarbitrage strategy that would put us at about a 2-2.5% withdrawal rate. Overkill you might say, but that is where we wanted to be.

    That is still the plan for now, but it may need to change a bit… and that is OK. Due to an asset allocation that keeps us sleeping at night and a cushy cash cushion, the calculators say we are still good to go as well. Worst case scenario is we work a little longer if we want to.

    That is the beauty of financial independence… it presents you with more options.

    Just as I did during the financial crisis in 2008, I will continue to invest regularly. I must say that I’m very tempted to inject quite a bit of that cash cushion into the market right now. I know this is market timing, but being debt free with stable jobs makes it seem like the wise thing to do. I do believe we have not seen the full economic ramifications of this yet, so I’m paying close attention. Thoughts?

    1. I retired just a few years ago and began withdrawals from our portfolio as planned. I’d been a little sad to miss some of the market peaks, having moved a greater percent of the portfolio to a CD ladder in preparation for beginning withdrawals. Now, I’m very calm and know I have enough cash flowing for withdrawals for the next few years when this will all be over and hopefully the markets begin recovery. I was tempted to put off retirement a bit to enhance our cushion, but thankfully I didn’t do that as DH was diagnosed with a serious health problem. None of us will live forever, so I’m glad I didn’t try to continue playing the game once we had ENOUGH.

  5. Thank you for this article guys!

    Dumb question: I have been looking at the VTI interactive chart and saw that the ETF was around $40 in 2009, now is around $122, could it be mathematically possible for it to go that low again ($40)? Or am I reading it wrong?

    Thank you for your content, you guys are amazing!

    1. Ah yes!!! 🙂
      I was going to ask this same question. We are due to do our yearly rebalance in 2 weeks. My understanding is yes, but would be good to get some further advice.

  6. In order to maximize on your return during this period of bear market, would it be advisable to take out a loan and dollar cost average it over a set period like you mention in your last post?

  7. Cracks in the financial system were showing up well before the virus appeared! Repo market is one glaring example.This could be a crash for the ages! The U.S. is $300 plus trillion in debt including unfunded liabilities! All currencies around the world are basically worthless! Imho we could be headed for a total reset of the system.A new digital currency could be possibly be implemented in the near future! The over leveraged debt based system is dying before our eyes!

  8. As I was gathering “work from home” items from my classroom, I learned about my county going to “shelter in place” soon. I turned off the local news sites for now and read your post because your perspective makes me feel calmer. Thank you!

    (I continue to feel grateful that John and I made it to Chautauqua in 2019!)

  9. It is amazing how much panic this pandemic has introduced into the US. Between the school closings, businesses closing down, and even San Francisco putting their city on quarantine there will be repercussions in the stock market. Like Joe said in the top comment, most families don’t have the resources to survive a few weeks without a paycheck. Decreased spending is a real factor in economic stagnation.

    While the situation is still rather dire, the precautions being put into place now will likely curb the transmission rate of this disease. Hopefully our recovery will be as expedient as those in the East. When it comes down to it, though, the only thing we can really do at the moment is follow proper precautions, and keep ourselves healthy.

    Everything else is just a guess. Is this the end? Has the market bottomed? Will the virus spread? No one knows for sure. Like Wanderer said, “millionaires are made in bear markets.” Choosing to stay on the sidelines may be safer in the short term, but the stock market has a way of recovering in the long term. Just as we have a way of recovering over time. This is why investing is hard. This is also why I’m grateful that we have sites such as Millennial-Revolution to keep us on the right track.

    1. We are still not doing nearly enough as the East and well behind the curve. Airports are still open as is public transportation. Flights continue to arrive from hotspots. Medical staff still not wearing PPE. We haven’t even begun testing yet! Wuhan locked down when there were 600 infected. We are well past that point. We are even behind Italy in some respects. Everyone please stay home.

  10. One thing I have personally learnt is this…I cannot rely on ANY government or politician or a company to ensure the well-being of my personal finances or my own health (or that of my family). I have to take charge. I won’t assume Social security payments will be available in the future. I want to build to cash cushion to ward off emergencies for atleast 3-5 years, and I have to strive to create additional sources of income, besides the yield shield, and finally continue steadfastly on the ‘no debt’ path. It’s been a wake=up call.

  11. Lets say companies lose out on some profit this year, they mitigate losses etc. If the PE ratios are 18-20 and they lose a years earnings then they lose 1 PE which is 5% and so the market worth is about 5% less then it was before the COVID-19s effect on the economy no doubt about that, well the stock market declined 30% so it is actually 25% undervalued right now. No reason to panic and all the more reason to buy.

    1. Matt, I agree. I do think it will continue to go down, but you would have to believe that the value of the economy is going to drop coextensively to seriously consider holding back on your investment plan.

      Fundamentals are going to to be impacted in a big way, but the economy’s value is not going down by 30%-50%. Better said, as you put it, the real value of the companies’ earnings streams are not going to drop that much after all the emotion evaporates. At least not in the “long” run, which I suppose varies by your investment horizon.

      It may take years to fully recover, however. But I’m buying. According to my original plan of weekly consistency. Not timing the market. I am a JL Collins believer. K.I.S.S.

  12. So here in Victoria, we are just about approaching full panic, full shutdown, and Markets are reflecting that. We have all of 1 person confirmed… WTF ? 30-40 are dying from Cancer, another 20-30 will die from old age, the flu, infection, car crash, you name it. But nobody gives a damn. If you have the stomach for another possible 10-15% drop, start rebalancing. I get the feeling in 2-3 weeks, people are going to come to their senses and realize, just how stupid North America has been in dealing with this… and markets may bounce back… You have the choice to do one of 2 things.. roll the dice and buy in… or wait for stability… in… I dunno 3-4 weeks? 3 months?

  13. Just wash your hands with soap (a lot) and don’t panic. Due to the existing panic, there are some items in short supply at grocery stores here in the US, but so long as the trucking industry doesn’t quit on us we’ll be fine. Most cities have at most a three day supply of food and other necessities on hand. After that is gone there could well be some general nastiness.

    So, in addition to being financially prepared, stock up on food, water and sanitation supplies. You may end up needing one or two month’s worth.

    Good luck.

    1. With all due respect Ray, you can’t be serious.

      I willingly stayed away from all of the ridiculous panic buying that occurred over the end of this past week. I didn’t foolishly expose myself to large crowds of panicking people who wanted to make sure they had something to wipe their ass with for the next year or two.

      Instead, I went grocery shopping today and the store was well stocked. I got everything I needed, there were no lines, people were calm. I only bought what I needed as I typically do. There may have been a few low stock items, but didn’t notice much. I didn’t check for toilet paper because I don’t need any right now.

      We are not going to run out of food and water. No one that I came across today was “ugly”. Please stop spreading irrational fears. It doesn’t help anyone.

      As you said, wash your hands with soap and avoid large gatherings.

      1. Ray’s point was about the trucking industry. I’ve worked in supply chain with heavy focus on logistics for 13 years. Let the truckers stop in any numbers and revisit your well stocked store. You will have a newfound respect for truckers.

        IMO we won’t see that, thankfully. Most blue collar folks want to keep working and earning money. I am seeing that at my firm with about 5,000 laborers. We distribute goods across North America and there is some concern about the trucking capacity. Two things work in our favor.

        1. Overall freight tonnage is down due to the unfortunate economic slowdowns in many industries.

        2. Truckers are in a cab all by themselves all day and interact generally with one receiving person at their deliveries.

        Elbow bump your local truck driver.

  14. I did the same thing a few days ago. I opened my spreadsheet and tried to find cash to deploy.

    Would you consider selling Bonds to buy more Stocks (if you can’t find cash readily available) ?

    1. The unfortunate thing is if your looking for cash to deploy, then you probably don’t have a good balance strategy in place. Start at the beginning of the investment workshop and read, or reread to build your strategy.

      Bonds funds are not performing like they should, so I am glad of my cash ladder. My 40% is in Can Bond Fund/T-bills/Money Market Accounts and some cash. This is where I would get the funds to rebalance my portfolio, the question is, when to start the rebalaance. Can I please time the market a little bit? How about waiting another couple of weeks to see if a bottom is reached?

      1. My allocation has been 80/20 for the past few years.
        I knew I was comfortable going to 90/10 max (single, employed, no kids).
        This downturn gives me the opportunity to move from 80/20 to 90/10.

        I just didnt have the cash to do it, so I moved (sold) some of my bonds to stocks (bought on sale). I didnt lose much on the bonds actually, they ve been pretty stable the past few years (at least my ETF, CAD Bonds).

        I have reinvested as follows: 75% International Stocks / 25% Canadian Stocks.

        I still have some cash to invest if/when the Stock market goes further down.
        If it doesnt go further down (which I doubt) or if I change my mind, it will be extra cash in my emergency fund (at 2%) to sleep better at night.

  15. It’s unfortunate all the things that are happening. I’m also sad my portfolio is down 15% YTD. I’ve never had that happen. I actually made money both in 2008 and 2009, albeit 3-4% each year so getting hit this time was disappointing. On the flip side, this will hopefully pass in a few months and I can’t wait to rebalance. My fingers are itching to place the ETF orders. When the markets start to make their way back, is it ever going to be fantastic.

  16. it seems you guys are more professional bloggers now than early retired with this passion project generating enough income for you to not be as bothered on the portfolio

    that’s a great situation to be in. congrats. but please be responsible in how you’re using your platform, especially on the yield shield. the nonchalance seems possibly fueled by a side income that covers expenses anyway but presumably the original portfolio now may well even be under the million dollars it was targeted to originally start with?

    there’s a real danger in setting ppl up for a rude awakening realizing their portfolio is nowhere near as conservative as they think it is off some of the suggestions here.

      1. Does it matter ? So, a dreamy FIREer (maybe) has to actually “do something” instead of sitting around doing nadda, sipping lattes, and having a spring salad lunch (I made that up)…talking about all the world’s problems and how it’s sooooo wonderful to have 600K to live out their days in sunny soCal (I made that up, too) in their “forever home”. HA. HA.

        The well-prepared FIREer is FINE. We’re not FI-retired, but not working either…for several months… The Point for us is to step off the corporate grindstone, not be useless people. We have food, tp etc. The store didn’t have much produce or fresh meat today, but…oh well, we bought organic carrots for the horses (too funny). There WAS food in the store. Sorry dresmy wanna-be FIREers, spring salad mix was sold out. Try the frozen section for something else. Or. Maybe it’s time to learn to garden?

        MillenialRevolutuon is – wait for it – USEFUL. Inspirational. Butt-kicking to make you rethink what you’re doing in life. Guess what? They’re compensated for it. Quit crying that they’re not “pure” because they don’t refuse every dollar that comes their way – or donate it to your GoFundMe. Money isn’t evil.
        You help me? I’ll gladly buy your [very reasonably priced] book! …and read blogs about people who FIREed in some way just as the last recession started (Frugalwoods). Learn from others.

        Thanks for this blog post! And for tge first-hand global perspectives. Will look forward to seeing updates as we move past this insanity/freaked out period… I’m not worried about you two either.

        1. you misunderstand the point which is that the market nonchalance largely comes from having nice side income, which is TOTALLY AWESOME. Everyone should scoop up that moolah.

          But presenting this nonchalance in the face of market turmoil as a result of having a risky yield shield that makes a 60/40 portfolio move more like 80/20 ones without acknowledging the stabilising impact of side income or that receiving a dividend in a downturn is the same as selling in a downturn isn’t cool. I’ve commented on this several times at length on recent postings to no response. If they refuse to address legitimate criticisms for the sake of maintaining brand/rep and a sense that the method has no flaws, it’s doing injustice to many who don’t know better and come here for guidance.

    1. At the beginning of 2020, MR advised that their portfolio A was worth $1,200,000 and portfolio B was worth $210,000. I’m going to assume a 60/40 portfolio of equities/fixed income and a loss of 16-17% YTD. That would mean portfolio A is worth between $996,000 and $1,008,000 and portfolio B sitting somewhere between $174,300 and $176,400. If they went ahead and changed it from 60/40 to 70/30, then the loss would be a bit higher. Regardless though, it’s not bad and their portfolio yield should not have changed significantly (surely some companies will cut their dividend but most will retain what is provided, just not increase it until things get better).

      Considering the current 30% drop for the equities side of the portfolio so far, I think MR has done a really good job at demonstrating that they’ve adequately prepared for most market downturns.

      If my assumptions above are off, Bryce and Kristy are welcome to correct me.

      1. if say half of their fixed income allocation is made up of dividend stocks and REITS which actually move like equities (div stocks by definition IS equity anyway), then a 70/30 portfolio would move more like a 85/15 portfolio. this is the unspoken risk of constructing a yield shield: enhanced volatility and thinking your portfolio is more conservative than it really is

  17. This is my first crash, I’m not as freaked out as I thought I would be. I haven’t found the courage to buy into the storm (yet) but haven’t panic sold (yet). I’m trying to see this as a positive, a crash had to happen at some point, and it’s best for me for it to happen now, 4-6 years before I planned to retire

  18. In case of covid infection, consider taking high dose ester c, a form of vitamin c that is less acidic on the stomach, to boost the immune system.

      1. Seriously, do you really find this funny? Personally, I don’t find this funny. This is NOT a joke to me. To someone uninformed like you, this may sound like a joke. To those who may be more familiar in this, a more hardcore treatment would be taking intravenous high dose vitamin c, which requires specialist to carry out.

        1. Well, Dr. Maverick, this is a finance blog, not a medical/scientific review. Also, you’re an anonymous nobody and have zero credibility. Making bogus medical claims is bullshit and I sure as hell will call it out for what it is. I’ll let real doctors make appropriate assessments based on specific individual circumstances. Virtue signal somewhere else. Absolute bullshit!

          1. Look, Mr. Dave aka the Smart Alec, I am not selling anyone anything that is branded. I suggested ester c out of kindness. If you don’t like ester c and rather prefer ascorbic acid, then that is fine too. If you don’t like vitamin c at all, I am fine with it too. There is no specific brand name for you to buy. A jerk/moron/scumbag like you would take that act of kindness as a negative is truly pitiful. This is not a bogus bullshit claim. You have the freedom to do your own research. In term of virtue, a person of your kind has none. Please don’t be so cynically toxic in mindset. I really wonder what in the hell is wrong with people like you.

          2. I am not suggesting ester c (or vitamin c) to anyone to prove I am more virtuous than anyone. I am suggesting ester c just in case to help anyone that might get coronavirus. If a person is filthy rich but die early from the virus, then it’s no point being filthy rich. My act is pure kindness. Not bullshit virtue signaling. And you are an extremely toxic person. Your toxicity cannot harm me. Your toxicity will only create negative karma for your future. All the wrong things that you said of me will be reflected back at you.

              1. Other than being a jerk/moron/scumbag, I don’t understand why you are also fond of making useless statements.

              1. Good people will have good karma. Bad people will have bad karma. It is because you are a fool that you see me as a fool. Get it?

                https://www.medicinenet.com/script/main/art.asp?articlekey=228745

                To quote, “In a series of YouTube videos released within the last two weeks, Richard Cheng MD, PhD, Chinese Edition Editor of the Orthomolecular Medicine News Service states there are at least three clinical trials in China studying the effects of high-dose IV vitamin C for the treatment of COVID-19. He mentions the Shanghai Medical Association has released an expert consensus statement on the comprehensive treatment of COVID-19 where they endorse the use of high-dose IV vitamin C for the illness.

                To the best of his knowledge, Dr. Cheng said the so-called “Shanghai Plan” published on March 1 is the first and only official government guideline for using vitamin C for something as serious as the novel coronavirus. He said there is a push to get additional Chinese hospital groups to study oral liposomal vitamin C for treatment of the virus because oral forms can be administered rapidly and widely to large numbers of affected patients.

                Dr. Cheng states that the principle investigator of the first high-dose IV vitamin C trial in China has told him that the preliminary results of the study are promising. The investigator said the administration of 24 grams per day to COVID-19 patients leads to significant reductions in inflammation. Dr. Cheng said this is notable because massive inflammation in the lungs and potentially other organs may be fatal in the illness.”

                Dave, you are a very very toxic person. This is not good at all for you. Why don’t you be humble, have a good heart, and be impeccable in words?

                1. I’d rather be toxic than stupid. Being humble and having a good heart doesn’t equate to me rolling over and letting a turd like you get away with spouting garbage. And then quote your source as youtube videos and some quack in China. Completely pathetic nutcase you are.

                    1. Just look in the mirror when you say that. You might not like what you see.

                      And it’s pervert, not perverse.

  19. Need some help here:

    I have a fellow teacher friend who, after listening to my advice, decided to do a direct exchange from a 60/40 ACTIVELY MANAGED 403b plan (with a 1.3% expense ratio!)
    to a low-cost targeted Vanguard 2050 plan (90/10).
    She is 30 years old and will be invested for the next 30 years

    Suddenly all this stuff just happened and she scared and confused.

    Her advisor is telling her “DON’T SELL!” But he’s the one who put her in this high fee plan. She can’t afford a fiduciary advisor and is asking me what I think.

    Personally I think because she is in it for the long haul so moving it into a direct exchange now doesn’t matter. In the meantime, she also put a hold on contributing to her 403b so she’s missing out on buying stocks on sale. However, I would feel bad if she moves it and this goes on for a year or two watching her $ nosedive.

    Really could use anyone’s advice here:
    Should she leave it alone for a while until this settles? Or should she direct exchange to Vanguard targeted and forget about it?

    Thanks for any input you could give.

      1. Thanks! I guess my question is she really selling them if she’s doing a direct exchange? She’s not cashing out rather moving it into an index fund.

  20. Thanks Wanderer, calm & patience is needed, especially for folks who may not have actually lived through one before (I’m old enough to have lived through a few).

    Despite all that, it still trips me up that folks are so wigged out about the market drop from this. The market SHOULD be dropping like a rock because we’re experiencing a huge global demand shock. It was weirder to me in January when the market was still going up – it felt like people weren’t paying attention.

    We’re going to do some serious damage depending on how long this lasts and how many folks go bankrupt and/or need high debt levels to sustain themselves in the consumer economy… and how much the various governments step in to buffer all that.
    (Rising global national debt will cause other issues, but this is different than the 2008 crash where there were fundamental flaws in the system itself.)

    Depending on how long it lasts and the time lag to restart all the economic activity, I’m vaguely guessing 2-4 quarters of rolling global recession prior to a recovery starting. The market is supposed to go down with a demand shock – have some patience, stick to your plan, don’t forget to be a good citizen by helping others, and wash your hands.

  21. Have loved all the corona virus articles from you guys. It has been a great gut check as I watch this thing invade Alabama. Thank you for a different & grounded perspective. Are you guys still in Asia or are you hanging out somewhere else? Would love to see an article about being a nomad during a pandemic, the thinking involved and the decisions you made as a result. I’m rereading Quit Like A Millionaire during the down time!

  22. Basketcase, I totally get your point. Consider that the core tenets of this thing are 1) save 50-60% of your income, 2) invest the rest, 3) build a portfolio that is 25X your (now reduced) living expenses.

    I know you are acknowledging it, but I want to emphasize that there is some real gold here. Just the savings piece and consumer debt avoidance alone are life changing. Despite your acknowledgement, your hypercritical tone risks overshadowing the core value people stand to gain. Your perceived emphasis is on the 20% not the 80%.

    I’m not sure if you have read the book but Kristy makes it very clear that she is not a financial advisor and that you should consult one if you want licensed, bona fide financial advice. Caveat emptor.

    There are different ways to view staying calm in this market turmoil. Your view is nonchalance. However, to folks in their wealth accumulation phase like me, staying calm and continuing to invest IS how they are going to do well in the long term. JL Collins makes this point very clear in his book as well. As Warren Buffet might say, avoid fear and greed. Keep being consistent.

    I think your central point is that the posts should contain more information about risks and other income to make the entire message more balanced. In the first place, providing a non-advisory account of their own personal finances that would be balanced in the view of all readers is impossible. I validate your point about the benefit of including more about their PT income, etc. However, they have been posting elsewhere about their book income and current personal finances, and have exhibited laudable transparency thus far, so stay tuned.

    In the second place, think about who the target audience is, and who 80% of Americans are for that matter. For people looking to cut expenses, save, and invest, the POV they are sharing is spot on, especially for people looking to achieve the financial freedom they have. People should be so lucky to be their age, or frankly any age when you look at the stats, to count a portfolio of such a size, no matter the Beta, risk profile or current loss of value.

    In the third place, if you want a business case precedent, look at them. This is the real point of the blog. They started in a downturn just like this. They followed the well articulated, quantitative advice they document on this site. They achieved the results they now enjoy, and face the risks they now face.

    I have read your credentials and respect your expertise. Remember: caveat emptor. It’s the reader’s responsibility to do their own research. Personally I just find it hard to envisage any scenario in which the average Joe/Joan isn’t wildly better off by following their footsteps.

    1. Duly noted and appreciate your bigger view on this. Indeed, I may be at a degree of criticism that’s beyond relevance for the stereotypical non-saving American knee deep in credit card debt who stumbles across this. The type of investors I have in mind in my comments are those who’ve already bought into the mantra of living below your means, save and invest and are now applying discretion on what assets to allocate to fixed income and how much of the portfolio to do so. For this class of investors – which I had assumed is the bulk of those reading this blog – I think the point is very pertinent especially in these times. If needed, I certainly acknowledge the BULK of what they’re suggesting is grade A investment advice.

    2. Also suggesting saving and investing with discipline is one thing, no doubt that’s great for all. Quitting your job to retire early (the equally important second half of their message) is another altogether which is where a proper risk assessment of your portfolio needs to be accounted for that currently underestimates the risk of the action through the perspectives here. Not acknowledging the importance of side income, the volatility enhancing effect of adding stocks and REITS to fixed income allocation and the mental gymnastics of yield shield is dangerously misleading. As you said, caveat emptor. I’m just trying to present the other side so they can.

  23. So while COVID feels like a big scary thing right now to readers in the West, what we now know in the East is that it can be contained. If Western governments simply copy what worked in Asia (and especially South Korea and Singapore), this will all be over in 1-2 months.

    ………..

    lol, silly kids

  24. So to the talk of COVID here: I just read a whole bunch of dumb. It’s better to be silent and let people wonder if you’re stupid vs. opening your lips and confirming it.

    To investing: set of limit orders on SPY in tranches down to $210 to total 500k in our taxable accounts. If you have cash reserves, and don’t have to dip into today’s buys for even 8-10 years, it’s time to buy.

    1. Well, got my first tranch at $230 filled today so I quickly re-did my limit ladder and shuffled down to $190. Come Monday I might re-do it all again.

  25. JJColin recently moved a big chunk of his VTSAX into money market after the market dropped 15%. He says is because of preserving capital to buy his house.

    What are your thoughts?

  26. Hello, Kristy! I have read your book over and over. We have not yet started our investment strategy as we have not had any extra income… until this coronavirus!!! I was thinking of taking that “additional” money the US gvmt is planning on giving to its citizens and investing. We have loads of cc debt in addition to student loan debt, however, I see the $2000 which the gvmt may give to my husband and I as a way to make money in the stock market and, when the market recovers, to remove some of that money to pay down our cc debt. We have done a great deal to reduce our spending, but I am disabled so there is very little wiggle room in our budget. Based on what the market is looking like, would this be a good time for us to “buy something” investment-related? If so, as an American, would you recommend the S&P Index Fund or do you have other options we should consider?

    1. it would actually be better use of the money just to pay off the credit card debt which is probably costing you something close to 20% interest. 20% GUARANTEED return beats any investing option out there

    2. Hi Emily Rosenzweig,

      My take is that one should clear all debts before embarking on the investment aspect. At the same time, it will be prudent not to take on additional debts where possible.

      My two cents worth of views.

      WTK

  27. Many good companies look attractive at these levels. They looked good 3 weeks ago as well! Buying individual companies is not easy with more risk which is why ETFs are likely your best option.

    Also be careful of focusing on dividends. Many companies will cut them soon. Some tough times ahead.

  28. I feel like all these one-off pumps like we saw today are only going to draw out the fall. I don’t think we’re anywhere near the bottom. Life won’t be returning to normal for 12 months +

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