This Time is Different…For Me

I know it’s been awhile since I’ve posted anything here. With all of the news around COVID-19, I had a little trouble wrapping my brain around how all of this can eventually come back around to personal finance and how we execute our personal financial plans.

I was batting around an idea when I came across this post from Ben Carlson of Ritholtz Wealth Management about how he is handling his own finances during this crisis. Since it was very close to the idea I was pondering, I took it a sign to proceed. (I encourage you to visit Mr. Carlson’s post linked above, as well.)

When I say that “this time is different”, I’m not referring to the phrase often stated as a joke when the stock market is constantly reaching new highs, as if to say that a correction/crash is NOT coming; we’ve moved past that point of being able to joke in that manner in a very decisive way. Michael Batnick (also of Ritholtz Wealth Management) recently wrote a post at The Irrelevant Investor about how this has been the fastest bear market in history.

No, what I am referring to is how this stock market correction, the third one I’ve experienced since I started investing, is presenting a different set of questions for me than the two that preceded it. And, this is a good thing.

Here’s why:

Finunciate’s Market Correction #1: The Dotcom Bubble (2000-2002)

When the dotcom bubble burst in the early to middle part of 2000, I had only been working for a couple of years. I had just gotten a pretty good promotion at work, so I felt my job was fairly secure.

But, I was still adjusting to a life of providing for myself. I had rent, student loans, a car payment, and a persistent desire for a social life to consider. The only investing I was really doing at this point was through my company’s 401(k) plan, maxing out the company match and putting the rest of my income to work on my other obligations.

As far as any concerns over a lost amount wealth are concerned, the newness of my investing life meant there wasn’t much there to lose. I can even recall the balances on my 401(k) statements being roughly the same from one statement to the next, meaning the money I was contributing to my retirement was offsetting the losses of the investments I owned. And, I knew that meant I was buying these investments and progressively lower prices, which would benefit me when the market reversed course back to an upward trajectory.

Finunciate’s Market Correction #2: Global Financial Crisis/Great Recession (2007-2009)

I’ve alluded to this time in my life in previous posts, but here’s a recap.

I had found myself in a very large amount of debt a few years prior to 2007, and had decided to start paying down debt. But, I wasn’t aggressive enough when it came to debt repayment that I was ready for the housing bubble to burst in 2007.

Still, everything seemed OK. I work in group health insurance, and bad economies tend to hit us after the dust of a recession settles. And, even though my employer made the decision to lay off some employees for the first time in its history, my job was never really in jeopardy.

I’ve got to be me, however, so I ran the numbers to see what would happen if I lost my job.

It turned out, as my 401(k) balance was getting cut in half, that I would STILL be in debt even if I sold pretty much everything I had. To sum that up, I would be unemployed, own nothing, and also be in debt. Fun…

I responded the same any other highly-indebted person who still felt his job was secure would. I panicked.

I pulled back on my 401(k) contributions to 1%, giving a lot of my employer match along the way. Not only that, I pulled a lot of my investments from stocks into a “stable principal” fund. (Basically, a money market account.)

While I eventually righted the ship back on a better course, I have little doubt that my actions were damaging to my long-term financial plan. (Not having a financial plan for a number years did more damage, but I digress.)

I had maintained a plan for my money throughout my younger years, I may have been in a position to increase my investment dollars during this time.

Instead, I felt I had no choice but to turn and run. There was no spare change to invest anywhere.

The silver lining that goes with this chapter of my life was that it led me to be more intentional with my money going forward. Which, eventually, leads us to…

Finunciate’s Market Correction #3: COVID-19 (2020-?)

While COVID-19 is a much more important issue, our finances simply must go on in some way.

So, as I am participating in social distancing, and hopefully writing a blog post that signals the end of a market downturn (meaning really smart people have solved the COVID-19 pandemic soon after), I give you a review of my financial plan in present day.

I’m debt free except for a mortgage, I have about 6 weeks of expenses in an emergency fund (a little light), and my savings rate is in the neighborhood of 20%. I have investments with my employer’s 401(k) plan, a Roth IRA, and a taxable investment account where I contribute money toward my future goals.

As you can see, I’m in a much better position. There’s really no need to panic, financially speaking.

While I don’t know how long this coronavirus crisis will last, nor the impact it will have on the economy and, ultimately, my job, I’ve had a pretty solid plan for the past decade. That plan has really bore fruit over the past couple of years, which is allowing me to continue on my course with only a slight trend toward adding toward my emergency fund.

That’s a big difference from the previous stock market correction.

While no one can tell you what to do in YOUR financial situation (that decision should always be yours), I hope seeing how my finances have changed over the years motivates you to be more intentional with your money. You might even seek out the help of a good financial adviser, or at least talk things through with a trusted friend who has some good finances (social distancing the entire way, of course). And, of course, I intend to be here, too, to try to help you along.

History tells us that the economy and financial markets will bounce back. The stock market will enjoy a time of positive investment returns, overshoot a fair value (whatever that may be), and come correcting and crashing down. It probably won’t be caused by speculation in a new industry, over-investment in real estate, or a global health crisis, but we can be sure it will eventually come along.

When that correction happens, no matter how good or bad your finances may be today, you will be able to look at how your plan has improved your finances. And, while the economy and financial markets seem to be crashing down around you, you will be able to look at how you handle your money and say “this time is different.”

Thank you for visiting Finunciate. Come back soon.

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