Although 2023 in terms of actual returns on the stock market has been better – with my favorite index fund (Vanguard’s Total Stock Market Index) is up 5.43% (at the time of publishing this article anyways) for the year, 2022 was rough with it being down 21%. It’s tough to sit there and watch your investments lose money – I know that I personally feel this. We’ve all worked so hard for our money – not only to earn it, but also to be responsible enough to not spend it and actually invest it.

Furthermore, there are a lot of worry out there – where we ever in a recession (depends on who you ask) but there certainly seems a lot more of a sense of impending doom. Layoffs continue to roll along – and although it’s mostly been limited to the tech industry – there’s still fear that this could spread.

What about you in your own life? Have you been laid off? Have you thought more about your emergency fund? Have you been cutting back (if possible) on expenses? Thankfully I’ve not been laid off but the YMF household has been grateful for our emergency fund being there and also we’ve been trying (mostly unsuccessfully – it’s tough) to cut back on expenses.

So, what do you do with your money in the stock market in light of the impending doom and gloom? I don’t have all the answers but here’s what I’m doing in my own life.

Take a step back

The first thing I like to do when I get shaky about the stock market is to pull back my viewpoint and look at the long-term chart of the market. If you zoom out (easily doable via Google Finance, and click the 5 year view) you’ll see that there have been plenty of bumps in the road, but that the stock market has always has bounced back. Of course past event are not a good predictor of the future but I do take solace in the fact that the market always has bounced back. It may take a year, two or a few but it always has.

Secondly, I remind myself that not all of my money is tied up in the stock market. We have some real estate, we have cash in savings accounts (including an emergency fund) and then some in the stock market. The last asset check that I did a few months ago we were 6% cash, and then an even split 47% between stock and real estate. I fully realize (or at least remind myself) that stocks are riskier than cash but that’s why I put my money there. Cash has historically had a pretty low interest rate and on top of that the interest rate won’t even keep up with inflation – which was around 8% last year.

So, I remind myself that risky investments will sometimes go up, and sometimes go down but I have my money there for a reason.

Photo by Brett Jordan on Unsplash

Don’t panic sell but sell if you need to

We’ve all been there; the news headlines all doom and gloom and you see the stock market all red and you wonder to yourself, “should I just sell now and then re-buy in later once it’s a bit cheaper?” I mean I already in the first point said that more often than not the stock market does eventually come back up so maybe there’s a half truth to this point? So the problem with this idea is that for this to work, you essentially need to get lucky; twice. You need to be decently luckily at timing the higher end of the fall, and then be decently lucky at timing the bottom of the buy. The market is a wild animal that is quite unpredictable, so to get the timing right twice is quite lucky. I’ve personally panic sold a time or two and each time I kick myself for doing so – I sold way too late and bought back in way too late – i.e. ended up losing money vs. staying the course.

So, as another saying goes; it’s not about timing the market but your time in the market. If you stay in it long enough, then all the ups and downs kind of even out and really you haven’t lost if you don’t sell.

Expanding that point, depending on your situation, there could be things that necessitate you selling some stock. I always say that your money should be put to work where it’ll work the hardest for you, and if working hard for you means that you need the money for a large expense – then go for it. The alternative would be taking on debt in the form of credit card or a personal loan – and those interest rates I can almost guarantee will be higher than what you’re getting in the stock market. So, if you need the money in this crazy world, I say sell the stock you need to make it happen. After all, your stock money is an investment, it’s there for future growth for when you one day need it. Perhaps that day comes sooner than you expected but at least you’re ready for it!

Where else would you put it?

The other thing I think about a lot is where else would I put my money? Even if I’m super nervous about my stock investments going down, my alternative is to pull it out and park it in a high yield savings account where as of today it might earn 4.5%? Inflation is still pretty high – although I think it peaked last year at 8%, I personally feel (in my own spending) that things are still expensive so it’s gotta be at least 6 or 7% inflation (meaning good and services are 6 or 7% more expensive vs. last year).

$VTI – my favorite index fund where I park my money, grew 19% in 2020, 24% in 2021 and then fell 20% in 2022. Still that’s a great positive return year over year, and let’s be honest – we all probably wanted to panic sell some, if not all in 2020 and 2021 at various times. The market and the economy is just so hard to predict no matter what your feelings are, it can always surprise you. Had I pulled out my money in 2020 and parked it in a savings account to be safe, I would have missed out on that phenomenal return.

Now, there is something to be said about diversifying your overall portfolio – as previously stated as of the last check I was 47% stocks, 47% real estate and 6% cash. But real estate is just as much of an investment as stocks is – and although real estate might be considered ‘less risky’, it’s not as liquid, meaning I can’t easily pull my money out as quickly as I could with stocks. Stocks I can have cash in my bank in probably 3-5 days (several settling periods will occur in between then) but real estate will take as long as it takes to sell the house/land – which could be a few days, a few weeks or even a few months. So, another reason I diversify; stocks might be riskier but where else would I park that money?

HODL / Summary

In a throwback to the crypto days where bitcoin only went up (LOLZ), I for the most part am a fan of holding (or hodling as they say in crypto) onto stocks. Until I find a better place to park my money from a risk/return standpoint (and I don’t think cash is always the answer), I’m going to keep my stocks where they are. I don’t own a lot of individual stocks, I own a balanced amount of stock compared to my overall portfolio and I don’t need that money for the next 2-5 years (that I know of) so I feel good about riding out any downturns. I don’t have a crystal ball so I’m not going to try to sell and re-buy – I’m just going to ride any potential downturn out!