What to Do About This Scary Stock Market

If we did need to sell, it would mean things have gone terribly wrong. It would mean we lost the ability to cover our expenses with only ONE of our paychecks. Then burned through our cash buffer and emergency savings. At that point I would not be concerned about selling for a loss – I would be desperate for the money. Build that cash buffer first, then the e-savings, then invest. Only take the risk in the stock market when you can afford it.

What you are suggesting is called timing the markets. Many studies prove that we suck at timing the market. Accordingly, there are a lot more $20 bills on the floor than there should be. But the herd mentality encouraged by both governments and financial media tend to prevent people from seeing them. To be honest I’m not certain I know what “trolling” means, since it’s used in so many different ways.

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Thanks for the advice, I’ll have a look into that and see if it would be a good fit for him. I have also been working with him on getting his spending down, as a recent divorce has changed his whole situation. It’s hard though when many costs are locked in as long as he stays in the house, and he’s no longer splitting the bills. Goes to show that you can live a certain way and plan for a certain outcome for your whole life and it can go upside down in a matter of months.

• I generally agree with you, but I think you’re wrong in quoting WB here.
• 10% down is nothing to write home about but recessions usually let stocks drop by 35% to 55% .
• The man is a genius and legend, but Berkshire is so large now that he cannot time the market.
• Please do the same comparison that you did above showing the last 20 years, minimum.
• Many people do not simply want to, or can’t devote that time for a variety of reasons.
• Retired people or people with a sizable stash should definitely be invested at least partly in some blue chips or other dividend-producing stocks.

Great post by the mad fientist, that was really interesting. I think I may choose to ‘retire’ earlier than expected, but still mess around working hours a week so that I don’t have to spend down the portfolio, and let it just grow. Or like I decided, I will get more enjoyment out of the money by taking at 62 rather than 70 as my health is much better now than what I expect it will be in my 70’s. Right now I am drawing at 62 and maintaining a part time job to fill in as supplemental income so as to not have to make major withdraws from retirement at this time.

For the average investor Vanguard index funds provide a great wealth building path. Also check out Paul Merriman .com he does extensive research on indexing and withdrawal strategies. He shows real life examples of 4,5 and 6% flexible and fixed withdrawal rates. It really is interesting and put my mind at easy when I need to pull from my portfolio. This is why I have always invested only in individual stocks. When the market crashed in 2009, I could clearly see that the stock prices were ridiculous.

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After 26 years investing and now that I’m retired I see indexing as a much smarter play. It is tax efficient and over long periods of time managers can not beat the market. Everyone who buys individual stocks and says how they do so well have to be taken with a grain of salt. The time they spend on it and accuracy of their stated returns?

1,932 (today’s close for the S&P 500) doesn’t constitute anything close to “a sale on stocks.” When the S&P falls below 1,000, that will be a sale. But, with the MMM and FI way, you are buying time and freedom. For most people in cubicle-land, those are very valuable items.

I don’t know whether your way of investing is better or not but I do want to know the true cost of the learning curve before I decide to head in that direction or not. Please do the same comparison that you did above showing the last 20 years, minimum. I believe that would be a true and fair comparison.

I have 30 paid holidays that I can actually take. My mortgage will be at 1.2% interest until it’s paid off completely. The cost for health insurance won’t change lexatrade review because of my individual health. Germans don’t believe in credit cards and paying cash is common. So you actually feel the pain of spending physical money.

There is something to be said for having your market exposure be in the currency of your expenses. The US has a lot going for it – an odd combination of open-season capitalism with just enough regulation to keep things from falling into totally crony-corruption inefficiency. A big, entrepreneurial population, massive capital infrastructure and a huge chunk of great land with plenty of it empty.

My advice to readers learning investing is the same. Yep, retirement is a bit of a Schrodinger’s Cat. You don’t know what type of retirement it will be until you jump in and try it. This is why flexibility is key, and why the 4% rule has to be taken as a single piece of information in a sea of research about investing and retirement. I’m 36 so I think I’m ok to work for a few years. You might be right, I may not have enough right now but I might have enough to stop contributing and just let it ride whilst I work part time.

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The macro efficiency of markets comes from real people responding to real inefficiencies on a more micro level. But of course, nothing moves in a straight line. Mean reversion can take a very tumultuous path, and markets rarely persist at the average for long. Of course, as the hedge fund industry OOP Meaning What is Object-Oriented Programming becomes more and more saturated with trend-following copycat funds, you find a greater and greater percentage underperform. But if you break things down by strategy, you will find that certain strategies perform better than others, not just year after year, but generation after generation.

My take away is that the market is high, but what is the alternative? The way I see it stocks in aggregate pay inflation (2-3%), dividends (2% ish) and earnings (2-3%) that rolls up in an expectation of 6-8%. However, PE10 suggests that the market is roughly 35% overvalued.

But what if it never drops anywhere close to that low? It could bump along like it is, continuing to pay dividends and eventually go up. Or it could roar up to 2000s valuations and stay there for a decade.

Go ahead and click on any titles that intrigue you, and I hope to see you around here more often. If you think you are hardcore enough to handle Maximum Mustache, feel free to start at the first article and read your way up to the present using the links at the bottom of each article. Warren Buffet has setup BRK-A/BRK-B to be the latter, he simply reinvests the dividends for you, instead of forcing you to do a DRIP . Never sell principal unless you absolutely need to do so to survive. Live on your dividends and Social Security, or get a job.

I’ve been trying to put money into things that have some intrinsic value (real estate/commodities/etc), but even these have obvious risks. Brandon, You’re not missing a thing and that fact is why I don’t bother much trying to convince people to invest in the stock market if they are dead set against it. Any of us who are using 401k, 403b or IRA to help build wealth get a positive double whammy of nearly guaranteed gains. Never before in the history of the world (ok, yes I love hyperbole!) has a gov’t tried so hard to create so many programs to help their people get wealthy. The real question is why don’t more people take advantage of these amazing programs and the answer is…I have no freaking answer to that baffling fact.

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I’m already very good at my job, and I have no interest in another one. I want my money to work for me for a change. Money managers cannot beat this “ETF that buys over valued companies” fund.

All that is being discussed here is buying stocks when they are at fair and low prices, and buying other things when they are overpriced. What I mean by “long term” PE is the “cyclically adjusted” P/E ratio, also known as the “Shiller PE” or CAPE” ratio. It is an average of the P/E ratio over the past 10 years. This is what is extremely predictive of future returns—not any single snapshot of P/E during any single moment.

If you’re mostly invested in stock index funds, that snapshot reflects the volatility of the stock market. I have a dividend reinvesting fund with roughly 0.6% costs plus roughly 0.4% depot costs. Additionally the tax system here implies you annually have to pay about 1.5% of everything you own in stocks, funds etc. I treat exchange rate fluctuations the same as I do stock market fluctuations – ignore them, and keep adding my money every paycheque according to my established allocations. I don’t think trying to time the exchange rate is any better than trying to time the market – you might get lucky, but you’re usually better off not doing it. I have been investing in individual stocks for over 30 years, and I’ve learned how to design a portfolio that will produce consistent returns over long periods.

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The markets are going to take a breather now and then due to the business cycle. Things go bonkers, then they pause or contract for a while. By many measures, the markets may not be ridiculously overpriced right now, but they sure aren’t cheap.

Regardless of any specific single data point, when you add up many macroeconomic indicators, to me they are pointing to a relatively flat stock market for the next 5-10 years. Hey Mr MMM; I wonder what could you advise to a brazilian mustachian. Have a look at BOVESPA Index… things can get really, really bad sometimes downhere, even dividends, is kraken legit are not being paid. I definitely see this this downturn as a normal and somewhat welcome occurence. I’m glad I started keeping some of my money in cash last year. Goes against your advice, but even Warren Buffet agrees that cash is the best hedge and noone should have 100% of their money invested this far into a bull market.