We live in pretty uncertain times. 2020 was absolutely nuts, with basically our whole lives turning upside down. I remember in early March of 2020 just watching the stock market plummet and being like “welp, it was nice having money, glad I worked so hard to invest that money”. Thankfully it came back (and grew more) but it was pretty nerve racking for a few weeks. I wonder if previous generations have felt this way, but it seems to me the young professionals today have basically grown up in their professional lives with a giant cloud of fear hanging over their heads. We’re in the midst of basically the longest running bull market (i.e. a time of growth) and sooner or later it’s going to have to come to an end and we’ll be in a recession (if we’re not already in one). 

Time and time again I continue to wrestle with the uncertainty of the market. Should I hold back and keep more cash on the sidelines? Should I invest in more recession proof assets like real estate? Should I be quicker to pull my money out when the market falls? It’s in this mindset that I wanted to try to offer you, and myself(!) some hope and giving us the confidence of investing without fear. 

The market comes back

I’ve written about this before, but one piece of financial advice that my grandma (NanaMoneyFinance) gave me (inadvertently but I picked up on it) – is that the market will always come back and continue growing. I picked up this advice when she told me that she didn’t pull any money out during the 2008 financial crash – a period in which many of our parents and grandparents were very affected, and something many of us saw first hand. I was amazed that she didn’t panic and pull all her investments out, but instead rode it out. Sure enough, a few years later, it all came back…and continued growing.

Do yourself a favor. Head over to Google Finance and look up the chart of the Dow Jones Industrial Average (a benchmark for the stock market). To make it easy, I’ve linked it here. Click “max” for the timeframe and take a look at it. Although there have been plenty of ups, and plenty of downs, notice that it’s always an increasing slope of a line, meaning over time it’s continued to grow. Remind yourself of that next time the market has a bad day and your retirement plan drops. It will come back…it always does! 

But what if it doesn’t come back? If it doesn’t come back, I always say that we’ll have much bigger things to worry about than the balance in our retirement accounts. We’ll likely be more focused on survival, food, water and shelter! If it comes to that, you’ll wish you had put money into an emergency preparedness kit instead of a retirement fund. Obviously the chances of that happening are small, and to me not even worth worrying that much about (I do have a small emergency kit). Historically, the stock market has been a solid investment and I believe it will continue to do so! 

There is no crystal ball 

In looking at that graph in the last paragraph, you might have asked yourself – well what if I had sold at the highs, and bought at the lows? Yes, that would be a better investment strategy – buying low and selling high. However, that’s pretty much impossible. No one knows the future, and it’s not really worth predicting. If you did have a crystal ball, you wouldn’t even be bothering to read this article, and you’d be sitting on a beach somewhere relaxing it up for the rest of your life. 

No one knows the future, we just know the past, and the past tells us that the stock market has been a good place to park your money and let it grow. Think about the 100+ years it’s been around. The Dow Jones Industrial average has been through 2 World Wars, it’s outlived the Soviet Union during the Cold War, it’s had depressions, recessions, wars, different governments, and through it all it’s not only survived, but also thrived! 

Don’t spend your time worrying too much about your retirement fund or other stocks. Find solid low cost index funds, which are affordable and very diversified, and let them do their job. Yes there will be downs, but there will be plenty of ups, and historically there have been more ups than downs. 

Slow and steady – i.e. dollar cost averaging

Think back to how you felt in March 2020, right when the world was shutting down due to COVID. The stock market was dropping and things looked bleak. Suddenly everyone was thinking about their emergency fund (3-6 months in a separate account!) and wondering what would happen. I had plenty of friends and colleagues hit the eject button, and get completely out of the market, and moved all to cash. As I mentioned previously, there is no crystal ball. And the market surprised us all when it came roaring back, and my cash friends sold and the low and had to re-buy at a higher price. Me on the other hand, had decided to ride it out, and my investments that were down for a month came right back up! 

Thinking forward, I know that sooner or later there will be another recession. The stock market can’t keep going up forever. I’ve come to the conclusion that I’m going to not panic, and not change my investment strategy. I don’t have a crystal ball but do know that over time things always bounce back. With this in mind, I’m going to keep my slow and steady investment strategy. I’m going to keep putting 15% of my paycheck to my retirement, and I’m going to keep putting 15% to my employee stock purchase program. 

There’s a financial concept called dollar cost averaging, and it basically means that you keep buying at a regular pace, despite what’s going on. There will be times you’re buying at a high, and other times you’re buying at a low. In the end, things will start averaging out, and those highs and lows will blend together. So even if (well, not if but when) the economy slows down, I’ll keep putting money into the market, and will just be buying at some lows instead! 

There are no alternatives 

To put it bluntly, you really need to invest; otherwise you’re taking a step or two backwards. Cash is no place to keep your money, and historically inflation has eaten away at it. Inflation is about 1-2% (could be more, could be less) each year, which means that what cost $1 this year will cost $1.02 next year, or that you money today is worth less than it will be tomorrow. Even putting your money in a savings account, much less a high yield savings account probably won’t keep up with inflation. During the past year, I’ve watched my high yield savings accounts drop their interest rate from 2% down to 0.5%. 

If you want your money to grow…and you certainly should as no one typically is able to retire off just their paychecks or savings account, it’s important to invest your money, and historically the stock market has proven to be a good place to do so!

Summary

No one knows the future, so just make decisions based on historical trends and with the information you have at hand. A bad day tomorrow does not mean a bad day the day after. Timing the market is risky, and can be expensive trading in and out. You essentially have to get lucky twice – selling at a high and buying at a low. Find good low cost index funds (I’m heavy in the Vanguard Total Market fund), and continually invest over time! Things should work out in the long-run, and you won’t remember the little ups and downs and instead will be thankful for an overall gradual positive upward trend!