This post was originally published on October 15, 2009, during the global financial crisis. In the past 10 years we've come full circle and finally re—re–breached Dow 10,000 yesterday! Bust out the party hats and call up your favorite car dealer, because money is now raining from the sky! I fully admit that being defensive so far this October has been wrong. We've gone from recession to rebound by October 15, 2009.
Instead, I should have taken the illusory $400,000 in home equity increase Zillow told me, dumped it in my E-trade brokerage account, levered it up to $1.2 million and bought 35,000 shares of DDM (Ultra Dow30 ProShares ETF)! Too bad, I'm too conservative and not smart enough to realize the world has changed.
This year's rally has been outstanding, and the more I get to know the personal finance community, the more I realize that A LOT of you are making a lot of money. From one PF blogger who writes his site helped lead him to a job earning 50% more, to another's proclamation of a 10% net worth jump in September, it's clear that a lot of people are doing very well in this recovery.
I'm watching all of you, especially those who provide such transparent net worth updates!
I rarely hear negative anecdotes about job losses and foreclosures anymore. Instead, there are a bunch of you who are buying new homes (congrats and good timing), steadfastly paying off debt, and finding new wealth. The bus is like a can of sardines every morning, and I can no longer walk into my favorite restaurants without a reservation. If that's not the best indicator of a bull market, I don't know what is.
10 TAKEAWAYS FROM THIS RECESSION
1) Asset prices always snap back so don't panic!
We saw it in the 80's, the Russian/Asian crisis, 9/11 etc. It's therefore always good to have separate pools of money spread out among different asset classes. When one asset class gets too out of whack, re-balance! By the time we know we're in a bull market the easy money has been made.
2) The stock market doesn't care about unemployment in a recession.
What they care about are profits and operational leverage. The name of the game is survival. On the downswing, things might be brutal, but if you can hang on to your job, you get leverage on the upside because firms have less people to pay with a rebound in revenues. The good thing though is that the stock market is a forward looking indicator.
3) Never doubt the US consumer, despite the recession.
There is no consumer in the world who has the culture and the capacity to spend like crazy as we Americans. Retail sales are healthy, a computer upgrade cycle is in the works with the launch of Windows 7, car sales are rebounding, and savings rates have stopped increasing. I find it laughable economists are applauding our 4% savings rate now, when many countries in the world have a savings rate of 20%+. I have no doubt we will blow ourselves up again!
4) When things are good, people are more vocal about their success.
This then gets other people all riled up and motivates others to try and do better. People will talk about how much they made in this stock, or this property, or this private investment. It's just human nature that nobody talks about their losses. But remember the old adage, “don't confuse brains with a bull market!”
5) People have short memories.
Just 10 months ago, populist rage was never higher about Wall Street bonuses. The WSJ now reports 2009 bonuses will breach record highs for 2009! I stumbled upon an old post by fellow Bay Area publisher, The Digerati Life which has an entertaining amount of bashing comments. Since the general public are benefiting from the rebound, they aren't as gung-ho about lynching richer people anymore!
6) Luxury cars, watches and other non essential items drop like lead balloons in a recession.
They are also the last to recover in a rebound. It makes sense that nobody wants to waste money on superfluous things in a down market. Now is the time to go shopping for your favorite Patek Philippe, BMW, or Hermes Grace Kelley handbag before prices normalize!
7) Fear and greed are just two sides of the same coin.
The same people who were bailing out of stocks last October are the same people who are chasing the markets up today. Your profits aren't real until they're sold! I for one am selling stock every day and locking in any gains I have. The proceeds continuously get shoveled into my real retirement fund i.e. interest bearing cash money.
8) Firms tend to over-fire during the down turn, and then scramble to hire in the upturn.
You want to position yourself for the positive bull whip effect this 1Q09 as I believe it will be a hiring bonanza in whatever industry you are in. Have faith if there's anybody out there reading who is unemployed. You will succeed just give it some time!
9) Life goes on in a bull or bear market.
Cash is king and if you still have your job, nothing has really changed for the most part. You could have been in a coma for the past 18 months, and woke up to the exact same environment. Your friends and family are so much important than money.
10) Money is incredibly mental!
Dow 10,000 doesn't mean anything really. But if you were watching TV the several times the Dow broke 10K, you heard everybody cheer! Even I started raising my arms like a mad man! When the Dow was at 7,000, all the pundits kept talking about was Dow 5,000.
Now that the Dow is 10,000, you have morons like me posting these types of topics! Optimism feeds on itself, until one day all our hopes are achieved. Hence, always be optimistic, keep creating goals, and never surrender! Always have an investment thesis to act as your guiding light. Review it every year to make sure you want to continue investing in your holdings.
Another recession could be on the way. Here is a recession checklist to survive tough times ahead.
Invest In Private Growth Companies
Finally, consider diversifying into private growth companies through an open venture capital fund. Companies are staying private for longer, as a result, more gains are accruing to private company investors. Finding the next Google or Apple before going public can be a life-changing investment.
Check out the Innovation Fund, which invests in the following five sectors:
- Artificial Intelligence & Machine Learning
- Modern Data Infrastructure
- Development Operations (DevOps)
- Financial Technology (FinTech)
- Real Estate & Property Technology (PropTech)
Roughly 35% of the Innovation Fund is invested in artificial intelligence, which I'm extremely bullish about. In 20 years, I don't want my kids wondering why I didn't invest in AI or work in AI!
The investment minimum is also only $10. Most venture capital funds have a $250,000+ minimum. You can see what the Innovation Fund is holding before deciding to invest and how much. Traditional venture capital funds require capital commitment first and then hope the general partners will find great investments.
Manage Your Money In One Place
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After you link all your accounts, use their Retirement Planning calculator that pulls your real data to give you as pure an estimation of your financial future as possible using Monte Carlo simulation algorithms. Definitely run your numbers to see how you’re doing. I’ve been using Empower since 2012 and have seen my net worth skyrocket during this time thanks to better money management.
Let the bull market continue with stocks at all-time highs!
Pretty nice post. I just stumbled upon your blog and wanted to say that I have really enjoyed browsing your blog posts. In any case I’ll be subscribing to your feed and I hope you write again soon!
Well, these past 18 months have comprised my entire investing life, so I got the lessons that (a) stocks are volatile and can shoot up or drop down in the short term, (b) home prices can go DOWN, at least in the short run, in spite of what everyone will try to tell you, and (c) in short, the short run most equity investments can be very, very volatile, and you’d be a fool to not have some money in less volatile vehicles to serve as a buffer.
As for where I am compared to ten years ago, well, in 1999, I was sixteen, working part-time at McDonald’s, and more worried about my GPA than my net worth. So, probably much better off ;)
Roger – Haha, nice. Then we are fellow McDonald employee alumni! I worked for $3.3/hr cooking Egg McMuffins. I was a master!
It’s good you’re young, and don’t have much invested. “The Less You Have The Less You Lose” was a title of one of my posts. This downturn should be a boon to people your age, and to a lesser extent people the next decade up as well!
Interest post. The other day when the D10K tweets (for those who are on Twitter) I started thinking about this more. It’s not I’m immune to index mania, just that I follow the S&P and I want to get back to 1500.
What I would offer after ten years is that both indexes ignore dividends. So 10K today isn’t the same 10K of 1999.
I look at savings as a multiple of income, (Yes, I’m refining this thought for a future post) and with an end goal of 20X so 4% withdrawal means 80% of current income gets replaced, looking this way actually puts things in perspective for me.
In 1999, we had 3.90X our annual income in savings. “Savings” is our net worth minus the full value of our house as we don’t plan to move upon retiring. Our current number is 8.01X. This is from a combination of aggressive savings, pushing 25%, a company match on our 401(k)s, and aggressive mortgage payments. Most years, when I dig in, I see we’ve gotten a return of S&P minus .1% give or take. As we get closer to retirement I’ll move the mix from nearly full up invested to 60/40 which I believe ideal for us.
I am curious how others’ balance sheets compare to 10 years ago.
Hey Joe – S&P 1,500 would be nice, but I don’t think we’re going to get there for at least another 2 years.
Savings = 8X your annual net income is huge! I think because you are older and have had more time to accumulate wealth, your ratio is higher. 10 years ago, for example, I was just starting out my career, so my ratio would have been less than 1X. In my early 30’s now, my ratio is closer to 3.5X, and I’m thinking by 40-40, the ratio should increase to 7-8X as well.
You’ll have to read my posts on Net Worth at some point, which basically says I’m a none believer. )
You’re right though, even though the stock market hasn’t gone anywhere in 10 years, the large majority of people have made progressed quite well!
Nice comment!
even though it’s been a rough 12 months, I think there are plenty of good things that have come out of this. People are more appreciative for what they have and I think generally people spent more time with family, sticking it through the tough times together. People are more Green aware then a year ago and are less wasteful, saving money and doing more to save the environment. Reduse, reuse, recyle!
Charlie – I agree. Being appreciative is so true, and now so much more common. The downturn has been a wake up call! FS
@admin
Yea that’s having enough reserves and/or cash flow to get you through the bad times, so you are not forced to sell.
@Larry L, New York
I really like your last line btw of “selling on your terms and not be forced to sell in bad times.” That is spot on b/c frankly, you want to avoid vultures who’ll shred you up to get to the bone. FS
Hey Larry, the Freedom Fund money gets locked away in 10-25k, 5 year CD increments at a blended rate of 3.625% for now. Pretty boring, but very stable.
The Freedom Fund is not to show performance, it’s just to keep track of savings. FS
@admin
Where exactly are you putting your “The Freedom Fund” into? Inquiring minds want to know. At least for me putting that amount into “cash like” investments leads to other risks.
Money is incredibly mental, that is so true.
Looking at this bull-run we’ve been having since March 9th, the S&P 500 is up almost 62% (in USD). But the USD has fallen about 15% versus the Euro (as an example) in the same timeframe. If the S&P 500 were priced in Euros, we have seen “only” a 37% increase in the S&P 500.
It seems like every investment is going up right now _except_ cash. USD is falling, hence make everything else appear to move up.
Piling into cash seems like investing in the only asset class that is declining right now — are you expecting the USD to come roaring back? If your money is in something that has not grown at least 17% since March 2009, then you are poorer relative to a European who is holding Euros/cash in the same timeframe.
BG – Ah, then stayed tuned for an upcoming post on why a declining USD doesn’t matter!
@admin
I figured as such but was not sure.
Hey Larry – Thanks for your thoughts and sorry you had to repost. I just had to approve your comments. Still early out here in SF! :) Yeah, the noise….. oh the noise from the media! FS
The lessons I learned:
– The Fed creates bubbles: first was dot bomb, then housing, now treasuries with a dash of stock market and commodities.
– Be greedy when people are fearful and and be fearful when people are greedy
– It’s business as usual in Washington. No matter who’s in office, same crap different President or Congress.
– The Govt wants you to be in debt. I just thought people were stupid but our govt is actually encouraging people to add debt.
– don’t listen to the MSM (main stream media) they are usually wrong. Do your own research and come to your own conclusions.
– With any asset if it has real value (that’s determined by your research) it will eventually bounce back. What matters is when you sell. Sell on YOUR terms and not be forced to sell in bad times (ie the past 18 months)
I really liked #5 that said people have sort memories. Only 7 months ago people were scared and selling all their equities and swearing off the stock market for good. Now it appears some of the same people are jumping back into the market after it has rallied 60%. Short memories indeed!