Million-Dollar Advice from 15 Personal Finance Bloggers
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The December 2018 stock market performance is likely to be recorded as the worst December since the Great Depression. And the swings have been crazy. On Christmas Eve, the S&P 500 Index plummeted 2.7%. Then the day after Christmas the index climbed almost 5%. As I write this on the morning of the 27th, S&P Futures are down 1.5%. And I doubt the stock market gyrations will end any time soon. I don’t have a crystal ball, but I’m not about to go down the rat hole like I did in 2008. Here’s my plan.
Research shows that women tend to be better investors than men. The reason is simple – men tend to be overconfident and think they can time the markets. So they trade more frequently while women tend to “buy and hold.” Timing the market doesn’t seem to work so well. Generally, I agree. And I rode out the 2008 crash, watching my retirement account lose six figures, dropping by a whopping 44%. By January 2010, my account rebounded, but it was a nerve-wracking ride to the bottom. I’m ten years older now and working to create my own income stream through the Early Exit Academy. Time and circumstances are no longer on my side.
Every Friday I update my retirement accounts. And each time I reach a new high, I record the amount and date. I reached a new high on August 31, and it’s been downhill since. Upon transferring my employer-sponsored retirement funds into Vanguard earlier in the year, I kept a fair amount of funds in the money market account (almost 50%). So even with that rather conservative allocation, I’m down 9.9% from my high. I’m okay with an occasional 10% loss, but I can’t watch my account plummet like it did in 2008. So 10% is my marker – that’s the point where I begin to research and assess whether I should move to a more conservative allocation. Right now, these are my primary considerations.
You’ve probably seen a risk tolerance questionnaire – there are plenty of varieties. Basically, these questionnaires attempt to gauge investor comfort levels with volatility and market losses. The problem is, there’s a big divide between the hypothetical and reality. That’s because psychologically, stock market losses feel much more extreme than gains. We hate losing money. It hurts. So when the market collapses, those answers you marked on the questionnaire don’t relate to how you feel and what you do. For me, my risk tolerance has grown more conservative. Having stayed in the market in 2008, I’m not going to do it again. I’m not as tolerant of big losses as I thought I was.
The Trump administration has proved inept, immoral, and incompetent. In fact, the Christmas Eve collapse was attributed to comments made by Treasury Secretary Steve Mnuchin. His reassurances that the major banks had enough liquidity to continue lending only raised worries, rather than alleviating them. And the shutdown of the Federal Government as a result of President Trump’s insistence on a border wall – a wall that most Americans oppose – demonstrates extreme irresponsibility. I have no faith that today’s leaders could actually lead us out of a financial mess.
There’s no doubt in my mind that the consumer is going to get royally screwed when the markets fall. And there’s no better indicator than the way this administration has worked to dismantle the Consumer Financial Protection Bureau – a government agency created in 2010 to make “sure that banks, lenders, and other financial companies treat you fairly.” Instead of protecting consumers, the Trump-appointed Bureau Chief is on a mission of de-regulation and less aggressive prosecution of companies for wrongdoing. When more Enron and Madoff scandals surface (and they will), will anyone be there to help the little guy? I think not.
We live in a global economy, so a trade war initiated by the United States has drastic repercussions. It’s hard to find evidence of how tariffs help our economy. Take the U.S. Chamber of Commerce’s position for example (“Trade Works. Tariffs Don’t”). Their state-by-state analysis is stunning – the emerging trade war threatens almost $2 billion of exports in my state of Virginia alone. Combined with tax cuts for corporations and the wealthy based on the faulty trickle-down theory, we’re creating a debt-ridden economy that is becoming even more isolated from the world around us.
My next steps may sound contradictory, but here’s my approach. I’ll move toward a much more conservative cash-based portfolio in 2019. My goal is to find funds that take advantage of the higher interest rates, while keeping cash on hand for bargain hunting. I’ll mark the value of the S&P index as I sell funds. And I’ll sit on the sidelines for awhile. I could be totally wrong and miss a terrific stock market rebound. I’m okay with that. But if I’m right, I will have cut my losses and over time, bought some additional stocks at bargain basement prices. Now I’m not a financial advisor and I certainly don’t know the ins and outs of Wall Street. I’m just one investor trying to protect and grow my assets. Time will tell how this all works out.
Dr. Brenda is a financial coach, educator, researcher, and sociologist. In addition to blogging at The Five Journeys, she writes 30-day challenges at BetterLifeChallenges.com. Her passion is guiding people on their journey to financial freedom through coaching at DrBrendaMoneyCoach and online courses at DreamBigMoneyAcademy.com.
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