This is a new series of articles that will complement my regular writings. They’ll be shorter and contain real-time thoughts at certain moments in our journey. I’d imagine 1-2 Debrief articles per month being produced.
Market
As in marriage, I’m a firm believer in the saying “til death do us part” when it comes to my stocks. And as occurs in marriage, you get tested periodically just like we are now with the market down over 30%. We can see the emotions flaring everyday … with wild swings of 10% up and down.
It’s scary stuff to see your hard earned money go down. My November 2019 (Keep Calm and Carry On) addresses fear and being stoic. But what should really scare us is being out of the market.
Bank of America looked at data starting in 1930 and found that staying in the market is critical even during tough times. They found that if an investor missed the S&P 500’s 10 best days in each decade, their total return would be just 91%. This is far below the 14,962% total return if investors had stayed calm and in the market through the ups and downs. Lesson: Stay invested.
I’ve been buying in my taxable account. I’m never hitting absolute bottom on any stock but I’m still buying. Aflac, Wells Fargo, Pfizer, and Altria are new positions added to my accounts in the past couple of weeks. And I’ve added to my Exxon and Coca-Cola positions too.
Buying quality stocks enables me to have patience. I know my companies are unlikely to go broke during rough times, so I’m comfortable holding forever. I’ll be reinvesting the dividends for several years until I either spend them or invest the cash in something else.
FIRE
Read an article this morning that said this bear market (and coronavirus) would change (and perhaps destroy) the concept of FIRE and early retirement. I’m not sure it will end the FIRE approach but it likely move many of them back into the job market to refill their portfolios.
The FIRE community is usually younger and hasn’t met a bear market yet. They’ve been riding an 11 year bull run and investing has seemed easy. I think it will have those folks (and everyone) rethink quality investments, diversification, and asset allocation.
Here’s the issue, if you can’t handle a bear market in your portfolio then you probably shouldn’t have retired. Many times, people retire with “just enough” portfolio only to see a bear market take away their safety cushion. Before you retire, ask yourself “If a 50% market correction hits tomorrow, can I survive?” Notice I said survive and not thrive or get by. If the answer is “no” that you couldn’t survive then you shouldn’t retire yet.
Young People Building Wealth
My 25 year old daughter bought her first stock in a taxable account last week. She bought 150 shares of Exxon at $36 with ~9.5% dividend yield. The dividends will be reinvested and she understands that buying quality stocks when others fear them is the greatest way to build wealth.
Buying Exxon now is like buying Bank of America at $5 during the financial crisis. Even if it cuts its dividend near-term, Exxon is a solid choice for a young person to purchase. It’s very likely to still be around in 50 years and that simple purchase could be significant later in life. That’s how a young person should do it and I applaud her for this. Well done, darling!
Thanks for reading!
Mr. TLR