Whether we're in a recession or depression is really irrelevant when:
- I'm about to be laid off,
- my 401k is now down 35% from the end of last year and quickly cascading towards nothing,
- I only have about 4 months of emergency fund saved up (including my investment account and ESOP), and
- I'm up to my eyeballs in debt.
When I started writing this post, I was going to question all the relentless cheerleading going on right now by many financial writers who encourage people to stay in stocks despite the cascading market crash, like Liz Pulliam Weston of MSN Money and Brett Arends of WSJ. The advice is rooted in historical data that supports how those who pull out of the stock market during a severe downturn never get back in time to benefit from the rebound.
But as we all know, historical performance doesn't necessarily guarantee future performance. (I even state that in my disclaimer.) What if this market crash is different than before? What if our free market system, our banking system and stock market is irreparably damaged? What if the global community no longer considers the U.S. a safe haven of investments and stop investing in our economy?
I was curled up in a fetal position sucking my thumb until suddenly I just said, "F#(@ it. If I lose it all, I lose it all."
Once I said this to myself, I felt much better. Of course, I have the benefit of knowing I have decades to make up for such a catastrophic loss. But this is a key step to overcoming my fear, particularly my fear of making a mistake. This reminded me of FDR's seminal speech: the only thing I have to fear is fear itself.
A Wall Street Journal article writes:
During the Great Depression, an entire generation became convinced that owning stocks was dangerous.
Depression-level stock phobia might be making a comeback. Will you suffer from it or conquer it?
First and foremost, Americans are afraid. ... As finance professor Meir Statman of Santa Clara University says, "Fear increases pessimism."
[I]t is hard not to be bullish. As an intelligent investor, you must always ask: What is my edge? What information or skill do I possess that the people on the other side of the trade don't? In normal times, that is a high hurdle. Today, however, you need only two things in order to have an automatic edge: cash and courage.
For people who have the courage but not cash (like me, he he), the article recommends rebalancing my investment portfolio by selling a little of anything that's gone up and buying more of whatever's gone down. Since that's already part of my plan, I'll remain on course.
The Wall Street Journal article points out: if you were among the courageous few who bought and held stocks during and after the Depression, you earned spectacular returns.
To be frankly honest, I'm not looking for "spectacular returns". I'll be happy with returns that beat inflation by the time I retire. :-D
Regardless of what the market does today, I wish you all an excellent weekend.