As I’ve talked about in the past, since the divorce I’ve been able to shovel a lot more money into retirement. And that was great — while it was a bull market.
Alas, the much-anticipated, oft-predicted drop finally happened. And while we all knew it couldn’t keep going forever, it still stings.
I went from seeing my portfolio jump notably each month to seeing it stagnate — even as I was adding $1,000 to $2,000 a month. Each of the last four or five months, I’ve logged in to make my contribution only to see my balance at almost the exact same amount it was the previous month. And this month, it even dropped by a notable amount.
It’s easy to get discouraged. And panicky, for that matter, since at age 43, I’m still hundreds of thousands of dollars below what I’ll need to live comfortably in retirement.
But when I start to get anxious, I remind myself of these three things. It’s doesn’t erase all the worry, but it’s good for talking myself down from serious concern.
So in case anyone else is struggling, here are some things to repeat to yourself when anxiety hits.
This too shall pass
Bear markets don’t last forever. In fact, according to Kiplinger, they last an average of only 9.6 months. Bull markets, on the other hand, tend to stick around for more than three and a half years.
Granted, 9.6 months is an average. Which means that some do last longer than that. And giving everything going on in the world right now, I’m proceeding based on the assumption this one will be around longer than 10 months.
But the point is that the market will probably look better this time next year. Maybe even by late this year. And then, if the market follows historical trends, we’ll have years of not just recovery but growth.
Our stakes are still growing
As I throw four-figure contributions at my Vanguard account only to see the same balance (or lower) the next month, my reptile brain sees the money as evaporated and lost forever.
But that’s not the case.
Even when our contributions don’t result in higher balances, they still mean more holdings, which will eventually mean higher balances.
When we send money to our retirement funds, we’re buying more shares of the fund. And eventually those share prices will rebound, so we will regain value.
In fact, since share prices are lower right now, our contributions are actually buying more than they were this time last year. So once the market does recover, not only will our original shares boost our portfolio balances, but we’ll have a lot more shares whose prices are rebounding.
So when the bull market comes around again, our portfolios won’t just go back to where they were before the bear market. It’s far more likely that we’ll see a large jump compared to where we were before stock prices started slipping.
We haven’t actually lost money
The personal finance world tends to be obsessed with net worth. But our thinking gets muddled because we blend actual value (saving accounts, CDs, etc.) with assets that I consider to have potential value, like stock or home values.
Remember when Bitcoin hit record levels, and everyone was talking about how they were millionaires? But then they didn’t actually sell their Bitcoin and a couple of weeks later, a lot of folks were no longer in the seven-figure club?
Because crypto’s value is only real once it’s sold. Until then it’s just money you could theoretically have.
Well, the same is true of stocks. We only have realized gains/losses once we actually sell.
So no matter how much lower your portfolio balance is right now compared to several months ago, you haven’t really lost a cent. As long as the stocks are still in our portfolio, the “losses” remain theoretical and can change at any time.
Obviously, some people do have to draw down. If it’s based on need, there’s not much that can be done. If they have savings, they can try to live on that and delay taking a distribution as long as possible to see if the prices rebound at all. But before December 31st, they’ll have to take out money or risk a penalty that may be more expensive than just taking the loss.
But there are a lot of us who aren’t going to touch our funds for years or even decades. So for us, when anxiety hits over a stagnant/lower portfolio, we need to remind ourselves that the losses aren’t real — not unless we make them real.
Have I missed any reasons not to worry about the downturn?
Related reading:
I saw someone say that buying into the market right now is like shopping a sale. It makes it fun to think of it that way for long term investing!
Yeah, that’s actual semi-common parlance in the personal finance blogosphere/Twitter arena. I decided to avoid using it in this piece because I was concerned “Hey, you’re not poorer & actually stock is on sale so buy up!” might feel minimizing to some of the people who are very scared right now.
If the “sale” viewpoint helps anyone, I think that’s great but I just wanted to be very very careful not to sound dismissive.
I looked at my account last night and made a squeaky panic noise. Then I immediately reminded myself of everything you said above.
I also may or may not have eaten my feelings. #SchrodingersTwizzlers
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They are in a superstate of their package and your intestines. And that’s okay.
I try to remind myself of all these things & it usually helps. Where I am currently struggling is when I see just how much the losses are. Is there a point where one should consider making changes or is there a point that warrants some panic? For example, if the value has decreased by tens of thousands of dollars in the span of the last 3 or 4 months?
Unfortunately, I’m an investing noob, so I can’t advise you on when is a time to sound the alarm. But 3 points that come to my mind are:
* Again, if your brokerage firm is still buying/selling to keep up with the Dow, then eventually the stocks you have will rise in value again and you’ll have more shares of them.
* All funds are experiencing a downtown, as best I can tell, so switching to another firm probably wouldn’t help much. So you’d need to take your money out of the market altogether. At which point you’d have to decide when to buy back in, and stock prices will have risen so you might not get the same amount of shares as you have now for that money.
* People in the Great Recession lost tens of thousands — in some cases even more than that — for a time. But as best I can tell, the portfolios all recovered. Here are a few articles about that —
https://www.washingtonpost.com/business/2018/09/10/years-after-financial-crisis-has-your-retirement-portfolio-recovered/ (This lady also had to talk herself down from pulling out her money, so probably the most relevant to you)
https://www.cnbc.com/2017/08/09/even-if-you-bought-just-as-the-global-financial-crisis-erupted-10-years-ago.html
https://www.kiplinger.com/slideshow/retirement/t047-s004-5-retirement-lessons-learned-from-great-recession/index.html
Thanks for this post, Abby. I’m sure a lot of us needed it. I certainly did!
I’m glad it helped!
I only started investing seriously into international funds around early 2022. It has been challenging pouring my hard earned money into a market that is so deeply in the red. But I tell myself that I’m really lucky to have done so now than during the peak of 2020-2021. Staying the course is going to be a challenge for me – thanks for the reminder!
It really is hard to do since it’s hard not to panic as our investment values drop. But I’m glad this will help a bit in staying the course/not despairing too much. That said, I will be very relieved when this bear market is over.
For 21 months from March 2020 to December 2021, the market growth slope was much, much steeper than it’s been in the previous 20+ years over a similar time frame.
Do you believe we’ll return to that steep growth acceleration?
Is it possible that the market could be overpriced even after the previous 5-6 month declines?
That’s a fair point. I guess we can’t know exactly what recovery will look like. But if I’ve understood correctly (to be fair, quite an “if”) the market has only gotten higher throughout history. As in, once we get out of bear markets, it never seems to just recover. The top of the market seems to always get pushed higher before too long.
Honestly, I don’t completely understand market forces. Frankly, putting my money into something that runs so much on laypeople’s optimism, whispered trends and half-assed research is pretty terrifying. But historically speaking, if you’re able to buy and hold, even without contributing more, your money just keeps increasing over the long-term. So I think that there’s a pretty good bet that we’ll go back to overpriced stocks far sooner than any of us thinks makes sense. And probably higher still.
I don’t can buy and hold, you he highs of the bull market go higher than previous ones. I don’t truly understand market forces, if I’m being honest, but
So I upped my retirement contributions at just the perfect time, really 😀
But also… I recently started playing with individual stocks prior to that (just a tiny amount of money) and that was… poor timing. My intuition kept saying it’s not the time, but my brain was like ‘the market is doing so well, let’s get in there!’
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Haha, yeah I think it’s the equivalent of changing lines at a supermarket. The line you were in always starts to go faster. We finally psych ourselves up to take the plunge and have bad luck on timing. But as Mr. Buffet says, time in the market is most important. So just keep buying up the lower-price stocks (even on a tiny scale) and your fortitude will hopefully pay off well.
Hi Abigail,
I heard someone suggest that investing in the market right now is like shopping a deal. It’s fun to think about it that way for long-term investing!
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Yeah, I’ve heard that. But as I told another commenter, if it works for you then that’s great. I am personally avoiding that phrase because I feel like it could minimize some people’s deep concern about their portfolios. “Oh, sure your portfolio balance is down, and you were already concerned about the amount you had for retirement, but think of it as stocks being on sale! Whee!” might come off as a little callous to those who are grappling with anxiety.