In light of the recent market crash, I wanted to take a pause from our regularly scheduled programming to share some thoughts on the situation. I’ll call out that I’m not a trained economist, I’m not a certified financial planner nor do I have a crystal ball but I do have a few ideas that maybe you’ll find helpful! 

We knew this was coming 

The economy (like many things in life) is cyclical. There are good times and bad times, i.e. times of expansion and times of contraction. Good times don’t last forever and neither do bad times. What’s interesting to call out is that for many of us young professionals we’ve only known periods of good time. Many of us might have been too young to remember or really appreciate what was going on in the financial crash of 2008. I was in the middle of college and just remember being thankful I wasn’t in the job market at the time. History prior to that had seen plenty of good times and bad times but since 2009 (when things got better), we’ve actually been on one of the longest bull (ie times of growth) runs ever. There’s an expression that goes ‘stocks only go up’ which kind of sums up how I think many of us view them. 

However, history repeats itself and we all knew the good times don’t last forever. In fact I wrote a post about this very idea a year ago!

Things were getting out of control 

Let’s face it, things were kind of getting out of control as of late. I’m not sure if you’re in the market to buy a house or have been in the past few years but house prices are kind of crazy. People were paying ungodly amounts of money OVER asking price and waiving all sorts of contingencies just to own a house. 

Stocks were only going up and the PE (price to earning ratios) were getting absurd. Investors were throwing stupid money at companies that didn’t make any money at all, or didn’t make much money. SPACs (special purpose acquisition companies) were all the rage; essentially they were blank check companies – an ‘investor’ or even a celebrity would have all this hooplah and raise a bunch of money with the goal of buying a private company to take it public. If you look at some of the examples, all of them floundered and went down in price while the SPAC organizers took their profits and ran. 

Crypto was getting out of hand too. Although I’m a Bitcoin believer, the other altcoins and other ‘projects’ were mostly a joke. And NFTs! I mean I’m all for supporting the arts but $69M for a jpeg seems like a lot. 

I just remember feeling the FOMO and how if I wasn’t throwing my money into the market in one way or another than I was missing out. Probably a good sign that things were gonna crash? 

Of course it’s easy for me (and us as a society) to have 20/20 hindsight vision and say ‘oh of course we saw it coming’ so maybe just gloss over my comments there. It is what it is now. 

What to do now 

Well firstly I’m going back to read my article that I wrote 2 months ago when I actually thought the sky was falling and stick with that strategy. Basically, I’m not going to panic (or try not to at least) and stick to the basics. 

I’m going to remember that I have an emergency fund that’s stocked (in cash) that could sustain us 3-6 months if needed. You know it’s funny, during the great boom of 2020-2021 I actually felt some pressure to but that money into index funds. My bank was paying me 0.5% interest while index funds were returning double digit growth. It felt foolish to miss out on that growth but I reminded myself I don’t have an emergency fund to make money, I have one to help protect my family in case of a loss and to help me stay mentally balanced knowing I’ve got a safety net. 

I’m also going to keep the course of putting my retirement into the market. Right now I’m contributing 15% to my retirement fund through work. As much as I’d love to retire early (and by early I mean now), I’ve got 20-30 more working years ahead of me. I don’t need that money anytime soon so I can let it go up and down a bit. Sure I’m ‘down’ but who knows when it’ll come back up. I don’t try to time the market, ie trying to sell high and buy low, and instead just focus on steadily buying. Right now stocks are ‘on sale’ and the money I’m plowing in each paycheck is buying cheap! 

I’m also going to keep investing into my company’s ESPP (employee stock purchase plan). It’s essentially a guaranteed minimum of a 15% return every 6 months. Even with the stock falling in value I’m still making 15% and it’s tough to make that return anywhere else! 

Aside from that I’m going to try to be smart and conserve cash as best I can. Inflation is still stupidly high (I swear we’re spending like $800/month on groceries). I don’t really want to say this out loud but ‘layoffs’ have been creeping up more in my LinkedIn feed. There are lots of unknowns out there and the old adage of ‘cash is king’ rings even truer today. This isn’t to say I’m going to keep investing altogether but I will be a bit more cautious for the time being. 

Be greedy when others are fearful

Warren Buffet, the legendary investor has a quote that says “be greedy when others are fearful and fearful when others are greedy”. I think about how over the past few years he really hasn’t made any big deals and continues to stockpile cash ($144B of it). I was thinking about Buffet the other day and imaging that this might just be the moment he’s been waiting for. He made big purchases during the 2008 financial crash and I’m wondering if he’ll do the same again this go round. 

I am thinking in my own life if during this time of fear should I try to be ‘greedy’ and get more aggressive with investing. I feel like on paper that’s true but it’s a bit easier said than done. I’m not going to lie, I’m a little fearful right now! Mrs. Money and I have kiddos at home, a mortgage to pay for and groceries to buy. Well perhaps I’ll be a little greedy and as I’m able continue investing!

Summary

We live in some scary times. The stock market has taken a huge hit, there’s fears of a recession and layoffs, and inflation is quite high. We’ll get through this! Stick to the fundamentals, remember that cash is king and also consider being a bit greedy while others are being fearful!