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?