Welp, here we are on this personal finance blog yet again talking about the troublesome economy. Layoffs, slowdowns, interest rate hikes, stocks falling, real estate falling, crypto getting crushed – things are not feeling super great right now! I certainly don’t have a crystal ball and am not a classically trained economist or a financial advisor, but presumably if you are reading this article you might be curious for my take on this economic market. I can’t tell you what to do or think and your situation is likely different than mine, but perhaps by me sharing what and how I am thinking it might be helpful to you!

Why we’re in this mess

The past 2.5 years have been nuts. From COVID shutting down the world then us all in a variety of outcomes trying to get back to normal, to social justice being brought into the picture with positive change being pushed for, to a economic market where it seemed that nothing went down in value; only up. If you were invested in this market over the past year or so, you’ve likely seen a huge increase in the value your assets. Readers of the blog will know that I am mostly invested in index funds, and Vanguard’s $VTI is one of my favorites – it’s so simple and so cheap. Well between March of 2020 (in my mind the start of the pandemic) to Dec 2021 (the end of the ‘good times’) – VTI was up 110%. Doubling your money in less than 2 years. Real estate was phenomenal too – the house we purchased in April of 2020 (what a time to purchase a house) went up 27% in value. Fast forward a few more months (real estate seemed to lag the stock market in falling) – we were up 40%. HUGE gains, all around!

Good times don’t last forever and I certainly knew things would have to slow down. Once again, not a economic expert but here’s how I saw it play out – COVID hit, the US government just started sending checks to everyone. Hindsight is 20/20 so maybe we got too many checks but things seemed bleak – like end of the world (or is that too dramatic?) bleak. The US government didn’t just have this money sitting in the bank – essentially they printed this new money. Suddenly many of us had money and time on our hands – and many people got into investing. This caused stocks to quickly rise in value (demand outpacing supply) and the more stocks went up, the more people seemed excited about things. On the other side of the coin supply chain issues due to COVID became a part of life and suddenly it mattered less if businesses made money, it mattered if they could, or if they might.

Well as money kept moving too quickly, this little annoying thing called inflation reared it’s ugly head and in the vicious cycle of buying more with demand only rising, prices finally caught up. Businesses with labor shortages or supply chain issues had to raise prices. Suddenly everything seemed more expensive! To help combat the economy running wild “inflation”, the Federal Reserve started to raise interest rates in an attempt to slow things down – higher interest rates means people generally save more vs. invest / spend.

Then with higher interest rates I think people started looking around realizing we’d been living in a bit of a fantasyland and that we all overpaid for things. Suddenly buyers of stocks, crypto and real estate slowed down and so prices started to fall. When prices start to fall businesses also have to come out of fantasyland and many that over hired are now having layoffs. It seems like every time I log on to LinkedIn I see more people in my network sharing bad news.

So, all that to say – we had good times, those good times ended and we’re all coming back to a bit more of reality now.

Zoom Out

It’s often easy to get sucked into the moment and forget the bigger picture. Go to your stock trading platform and look at the Dow Jones or the Nasdaq. Sure things have decreased but we’re still looking at a nice upward trend! Back to my $VTI example – with where we are today (after much pain seeing prices fall) – I’ve still had a 20% annual return since March of 2020. Historically stocks have grown by 8% each year so we’re still beating the average! Our house has had an annual growth of 12%. Despite us feeling some short-term pain – things aren’t as bad as they seem – even beating historical averages!

It’s when I zoom out that I remind myself that while the good times were great – I’m not retiring tomorrow so I didn’t cash out to lock in my gains, and since I’m not retiring tomorrow I don’t need that cash so I’m still ok to let it ride! Stocks always are in a constant cycle of going up and coming down – and historically they’ve gone more up than down and that’s continuing to prove true!

Am I worried

To keep it simple for you (lol); yes, and no. No, I’m not worried in the sense that I’ve ‘zoomed out’ and recognize that this is just a downturn in a history of many good years and not so good years. I look at my investments as: short term, medium term and long term.

My long term is what I think of as retirement, and I’m not going to be able to touch that money penalty free until I’m 59.5 years old. Money I put in I try not to worry about – I put in in, am thankful for the tax breaks I’m getting, and remind myself that over the last 100 years the stock market has returned on average 8%.

My medium term money is non-retirement money that I might need in the next 3-5 years. I’m obviously slightly more worried about that bucket of money as I might need it sooner. It’s tough to stomach seeing my hard earned money lose 20-30% of its value. However I don’t necessarily have a plan for this money right now, its just money I think I might need in the next 3-5 years. Keeping money in the stock market still seems like a better move on average vs. keeping my money in a savings account.

My short term money is money that I expect to use in the next 1-3 years. Since I’m in need of if sooner, I keep this all in a savings account, and thankfully have not lost money in those accounts (although arguably it’s only worth 92% of what it was last year thanks for inflation right?).

So, longer term I am not worried. Markets go up, and markets go down. In my opinion keeping money in the stock market on average is still a smart move.

However, shorter-term I am a bit worried. Every time I get on LinkedIn it seems there are more layoffs, and the stock market has had a brutal few months. It’s tough to a) see your investments lose value and b) to worry about your own job stability and the income you have coming in. It’s a fast changing world out there!

More rationally thinking, I shouldn’t be that worried. My company’s financial standing is strong, our outlook is positive, and I have a role that historically has proven safe in downturns. Layoffs don’t happen all too often at my company and are often limited to specialists. I’ve also got medium term investments that I could tap into, and have my emergency fund where we’ve stashed away 3-ish months of expenses. I resisted the urge during the glory days of the stock market 2020-2021 and didn’t put any of that emergency fund into stocks or bonds, I kept it all in cash. Our mortgage is reasonable and outside of that have no debt. All told, I am fortunate and shouldn’t be as worried!

What I am doing to prepare

It’s times like this that I’m quite thankful for my emergency fund. As mentioned I’ve kept it all in cash and that’s a pretty good feeling knowing I’ve got 3 months of expenses stashed away. Although the stock market isn’t doing too hot right now; I’m still buying into the stock market (dollar cost averaging!). In terms of what we are doing; Mrs. Money and I are trying quite hard to slow down on expenses. Pretty much everything now seems pricey. We actually just got notice today that daycare is going up $50/week/kid. Yikes. Groceries are expensive as is eating out, as is gas. Although it’s easier said than done, we’ve adopted a mindset of cutting back. A mindset is the first step, and hopefully we’re able to make some progress. We’re doing this as the market is pretty tough, things are expensive and spending less and trying to have more cash on hand seems wise! Finally we’re continuing to invest in ourselves – Mrs. Money is working hard on her new business (while also working part-time so having some income) and I’m working hard at work always trying to learn and grow!

Summary

I’m still not sure what to make of this market. One day it’s super up, one day (or many days) it’s quite down. Although I don’t have a crystal ball it feels like things might not be so great economically for a while. Long-term I’m not worried; short-term I’m a little worried. To help with me being worried in the here and now, I’m trying to cut back on expenses/spending where I can, although that’s not going super great. Overall just trying to be more cautious and careful with our money!