Stock Market Meltdown Implications For Everyone

Stock Market Meltdown

1, 2, 3 panic! The stock market meltdown of 2020 has taken us all for a ride. Thanks the coronavirus pandemic, the stock market meltdown will likely come back. Then the 2022 stock market meltdown happened again.

It's a good thing that most of us are super savers, have a diversified net worth, actively rebalance our portfolios, and haven't confused brains for a bull market!

We've also been preparing for downturns all year with posts such as: “Are We In Another Financial Bubble,” and “Creating A More Defensive Portfolio With Bonds,” so I suspect most of us are doing just fine. But what about other people who might feel like jumping out the window because they went on margin? Or how about that starry-eyed person who thought the grass was greener at a startup?

In this post, I'd like to go through the implications for various types of people if there is a sustained market correction. It's nice to say that all of this is really just noise since we're investing for the long run. But over the next one-to-three years, a lot of things could change if the pummeling continues.

Besides, it's always good to have plans for various scenarios, whether they come true or not. Let's imagine a current scenario of a 20% correction in the stock market. 

Stock Market Meltdown: Implications For Startup Employees

You've got to face reality that your lottery ticket is not going to make you rich. Since you aren't going to be rich, then you might as well enjoy the journey!

It is imperative that you ASK the founders what is the latest condition of the company's financials e.g. what is the burn rate, how long will the company last if revenue stays flat or goes down, etc. An implosion in the public markets means that private investors will be much more stingy in funding companies that aren't clearly on the path to profitability.

Paul Graham, founder of Y Combinator admitted that 93% of his companies fail, even though his accelerator has less than a 5% acceptance rate. The only people getting rich are the founders or employees in the inner circle who've been able to raise enough money to cash out to rabid Venture Capitalists.

The Secretly guys who cashed out for $3 million each and shut down their company within 12 months, while leaving their employees in the dust, are winning. Sure, they may never be trusted again, but who cares?

One guy drives a Ferrari and has $3 million bucks! But Zirtual management is not as lucky, and neither are the 400 employees who got let go at 1:30am Monday morning via e-mail. The need for funding is imperative given most startups don't make money for years.

There's just no liquidity for most startup employees. Even if you are eligible to offload 10% of your shares in the latest Series D round (not many startups get that far), you're going to feel tremendous peer pressure from management to not do so. Your next pay raise or promotion might be at risk.

I say, screw the pressure! Your mission is to try and get as liquid as possible, because that's what any smart founder who has brought his/her company this far is doing. Trust me, I've spoken to many, and all of them want to desperately cash out a large part of their holdings.

You're already accepting 20-50% below market pay in hopes of making it big with your equity. Turn profits into cash. Strongly consider applying to companies that have massive cash on their balance sheets. You can always say you at least tried the startup world with no regret.


Candid Advice For Those Joining The Startup World

The Best Way To Get Rich: Turn Funny Money Into Real Assets

Stock Market Meltdown: Implication For Entrepreneurs

Raise as much cash now and seriously rethink your desire to ever go public. Once you go public, your happiness will drop drastically. You'll now have regulators watching your every move. You'll have thousands of new masters, even though some might own a tiny amount of stock.

By staying private, you can manipulate folks into thinking everything is great. You don't have to disclose your financials, and you've got Venture Capitalists out there dying to give you money. Raise more money from them ASAP. What do they care? It's not their money they are investing, it's their limited partners' money.

Do you know how hard it is to hold on to your employees when your stock is cratering? It's virtually impossible. Seriously, who the hell wants to work at Twitter?

It's a shit show that does not even have a full-time CEO. Even with the stock in the dumps, it still paid its new CFO over $70 million dollars after just one year of work! Talk about demoralizing for everybody else. His nickname while at GS was “Anthony No Bonus,” after getting the bullish internet stock calls totally wrong.

Just do what most smart co-founders do, and cash out at every single round. Use your funny money to buy something tangible that will last far after the bubble bursts. There is absolutely nothing wrong with the lifestyle business. In fact, the lifestyle business is what it's all about!

One thing we've learned during the 2020+ pandemic is that business can be shut down by the government. Therefore, online business valuations should grow. They cannot be shut down.

Please read:

Sell Your Companies For Millions And Still Not Be A Millionaire

Hurry Up And Be An Accredited Investor Already

Why I Regret Selling My Business For Millions

Stock Market Meltdown: Implications For Every Day Employees

Market Meltdown

Let's say you're like most people that don't count on equity options to make you rich. You're getting a 1-5% raise every year and have come to grips you'll have to work for 40 years before you can retire. This life sucks if you don't at least like what you do.

The only way out of this situation is to start building multiple income streams through side hustles. If you don't like your job five years in, you sure as hell won't like your job 10 years later. But if you start developing different income streams now, in 10 years, these streams may provide enough fire power for you to break free and do what you really want to do, even if the pay is much lower.

Since you're in your job for the long run, unlike many ADHD-suffering startup employees who hop around every 1-3 years, these violent downturns in the stock market should be viewed as buying opportunities. For the first 20 years of your career, the amount you save in your 401k or other retirement portfolios will make up the majority share of your portfolio's total value.

At the very least you should be maxing out your 401k. Hopefully you've got some 401k match program or company profit sharing to help add to your retirement account as well. Once you've maxed out your 401k, shoot for 20% or more in after-tax savings. You'll eventually build a financial nut so large that it'll hopefully start returning more money than you put in every year.

But remember, try to retire by a certain age, not after accumulating a certain financial figure. Your life expectancy is pretty certain at around 80 years old. On the other hand, there's always one more dollar you can make.

Please Read:

How Much Should I Have In My 401k By Age

Tether Your Income To Boost Your Staying Power

Stock Market Meltdown: Implication For Real Estate Owners

Real estate usually follows the stock market with a 12 month lag. If the stock market stays flat-to-down over the next 12 months, we should expect the real estate market to finally flatline or decline by 2017.

When equities are tumbling, bonds are generally rallying. As a result, you've seen the 10-year yield decline from a 2015 high of 2.48% to now only 1.95%. Mortgages rates have also fallen by a commensurate ~0.5% across different durations as well, which is why you should refinance if you've haven't done so already.

But now the 10-year Treasury bond yield is close to 5%, a 17-year high, thanks to aggressive Fed rate hikes since 2022.

Credible is the best place to get mortgage refinance quotes. Qualified lenders are competing for your business. You can get free quotes in minutes.

stock market meltdown means timem to refinance

There might be a short-term knee jerk reaction where investors transfer capital from the stock market to the real estate market as we saw post 2000. That said, in the long run, real estate appreciation is tied to corporate and individual earnings power.

I strongly suggest those with more than a primary residence to deleverage through principal pay down, increase savings, or sell a property. I've personally paid off the remaining $100,000 of a rental property mortgage I took out in 2003 this year even though the mortgage was only 3.37%. So far, no regrets. When my tenant's lease is up in June 2016, I am strongly considering selling as well to not only cash out, but simplify life.


Should I Buy Property In A Rising Interest Rate Environment?

Spray And Pray: The Cheapest Way To Buy Property

Stock Market Meltdown: Implications For FIRE Movement

Many of us regulars are financial freedom fighters. We are part of the FIRE movement I helped ignite in 2009.

We want to achieve financial freedom sooner, rather than later. As a result, we're often trying to find the quickest way to make enough money so we never have to work again.

Trying to accumulate wealth quickly almost always results in the need to take more risk. There are those people who literally have over 90% of their net worth in the stock market. Meanwhile, others have leveraged to the gills and bought multiple properties in currently hot locations.

If you don't have the liquidity to hold on during downturns, you will be crushed. You'll be forced to sell your positions during the worst times, and when things finally recover, you'll start hating everybody around you.

I don't have a problem if you want to take concentrated positions in things you really believe in. Just know that in every transaction, there is a buyer and a seller. Both buyer and seller believe they got a good deal. Depending on your time horizon, one of you is going to be wrong, sometimes very wrong.

Having a risk-free fund in CDs or a money market account is a must. During a bull market, everybody makes fun of people with boring old cash. But cash can definitely be considered an investment. Only an ignorant idiot or someone trying to sell you a product would ever advise against having a certain amount of cash in your net worth. Focus on cash on hand and cash flow.

Here's a sample of a recommended net worth allocation. Having anywhere from 10% – 30% of your net worth in risk-free assets is a good move. There are several more frameworks to look at if you click the chart and read the post.

Net Worth Allocation By AGe


How To Retire Early And Never Have To Work Again

How To Build Passive Income For Financial Freedom

Stock Market Meltdown: Implication For Retirees

For those of you who are already retired, these market moves should mean very little. You've seen the worst before, and all of this is just noise. Your investment portfolio should have no more than a 50% weighting in equities. As a result, you may actually be making money if your portfolio is heavily weighted in bonds.

With debt levels at zero or close to zero, Social Security paying out, and a steady stream of dividend income, interest income, and alternative income coming in, you are sitting golden. You can't take it with you, so the focus on cash flow is key.

Only after a 50% decline in the stock market, should your worry-meter begin to rise. Good thing the chance of another 50% decline is minimal. Corporations have much more cash. Consumers are much less levered. And the creditworthiness of borrowers has steadily increased since the crisis.

Enjoy life to the max! Ignore the markets in the short run.


The Ideal Withdrawal Rate In Retirement Doesn't Touch Principal

What Does Early Retirement Feel Like? The Positives And Negatives

Everything Will Be OK

When I was an Associate back in 2001, my Director said I was lucky I didn't make much in the first place. I lamented about my bonus getting slashed by 50%. I wasn't very happy with him at the time, but now I'm ecstatic I was poor during the dotcom collapse!

For younger folks, or folks who don't have a lot of money, a stock market correction is fantastic if you actually deploy some capital and hold on. Unfortunately, a lot of people just talk about investing if the market collapses. But then get too wigged out to do anything once the market actually does.

For older folks, you've gone through enough cycles that your net worth is hopefully properly diversified to weather the reoccurring tsunamis. And even if you were too stubborn not to diversify, at least you've developed new income streams to keep the boat afloat.

The worst case is that we'll all have to go back to working minimum wage jobs flipping burgers or picking up passengers for a living. I've done both, and I can tell you that life isn't so bad making less. So long as we have each other, everything will be OK!

In case you're wondering, here's what I'm doing in this downturn:

  • I've accelerated my dollar cost averaging given we're seeing 2%+ corrections.
  • I've talked to a private wealth manager to hear his thoughts and what he's seeing.
  • I spent several hours writing and updating this 2,400 word post to address those of you who have concerns.
  • I've come up with a game plan as to what I must do in terms of generating income over a one, two, and three year time frame.
  • My savings machine is on the maximum setting. I plan to save 80%+ of my after tax income until the end of the year, and at least 60% for the first six months of next year to build as much fire power as possible to low ball on a property or invest in equities.
  • I've reassessed my personal burn rate (budget) to see if there have been unnecessary spending over the past six months I can cut out.
  • I'm investing capital in the Fundrise Innovation Fund to invest in private growth companies that have seen their values fall post-pandemic
  • I'm negotiating better terms, or not investing at all in any startups.
  • I've written out a list of things I want to spend money on now instead of have it disappear into thin air.
  • I've run my portfolios through a free Investment Checkup so that I know exactly what my current asset allocation is e.g. cash balance, equity and fixed income exposure compared to recommended exposure.

Invest In Private Growth Companies

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. In addition, 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.

Protect Your Wealth By Tracking It Carefully

Track Your Net Worth Easily For Free: In order to optimize your finances, you've first got to track your finances. I recommend signing up for Empower's free financial tools so you can track your net worth, analyze your investment portfolios for excessive fees, and run your financials through their amazing Retirement Planning Calculator. Those who come up with a financial plan build much greater wealth over the longer term than those who don't!

Retirement Planner Personal Capital
Is your retirement on track? Here's my personal results.

73 thoughts on “Stock Market Meltdown Implications For Everyone”

  1. I got slammed this week with a 10% loss (as with everyone). I’m heavily in stocks (~90%). And I’m not very diversified since banks won’t lend me enough money to buy a pencil. I got crushed during the last crisis in real estate and no longer own property.

    Today I went in and bought more of a stock index fund and a short-term investment grade bonds fund, with my usual monthly allocation of $2k.

    I’m wondering, should I be buying more stocks, or more bonds at this point? I realize I should have had more bonds in my portfolio to begin with, but maybe I should continue with getting more stocks since they are discounted.

    I’m long-term…maybe another 20 years. 10-12 years, if I’m lucky.

    Any advice? Thanks.

  2. Well my SEP-IRA was $400,000 in equity. Now down to $350,000 over the last week lol.
    I still have $40,000 cash on the side line not counting the $3000 a month standard dollar cost average that I been putting in.

    So you are counting a further drop of about 10%? Which is very possible, but what if it drop only another 6%? What is your alternative strategy. Or if it drops another 20%. Will you regret not having extra money to put in?

    Is it standard strategy to top off your dollar cost average by looking for period so larger percentage drop VS. dollar cost average the additional amount over a set period of time?

    Right now I am real estate heavy. Close to $2,000,000 in real estate. I really want to use this opportunity to boost my equity. I am 44 y/o. I am hoping by the time I am 50 y/o I’ll be sitting on a $1,000,000 portfolio and start spreading out into fixed income.

  3. Mmmm… just dropped $9000 into my index fund between Friday and Monday. Too early?

    Dow 12,000 or 10,000?

    How low do you think it’ll go?

    I still have $40,000 to deploy. Dollar coast average over 1 year, 2 years, 5 years?

    1. Depends how big your existing portfolio is?

      I’m deploying money in up to five separate tranches every time there is a 2% or greater swing. This is NEW money, on top of my normal monthly contribution. I dollar cost average every single month as standard.

  4. Im about 32 and been hoarding cash for a while now too scared to really enter the market but this hit the past few days really is motivating me to make a change.

    Fully maxed 401 of about 205k all invested and and IRA maxed last two year

    If i were to muster up 100k-125k in cash post emergency fund do you think its time to maybe pick up a total market fund or Spy? Think its wise to pull the 401k finds out into cash and reinvest as well?

    1. Not sure what u are asking about the 401k. Please clarify.
      I’d just leg into the market in multiple tranc
      Ie dollar cost average so you don’t hurt yourself as you’ve shown reluctance to invest already.

  5. The crash(correction) is just noise. The Fed will continue printing and there will be no interest rate increase. The market will recover- albeit temporarily. Other nations will continue to print and be weighted down by debt that will never be repaid. If something can’t go on forever, it will eventually stop. What happens then? Argentina in the 2000’s/Germany in the 20’s is my guess. At that time I’ll be buying RE with the same enthusiasm I had in 09….

    1. It seems like there’s less than a 50% chance there will be a Fed hike now if this type of volatility continues. We shall see. In the mean time, rates have come back down by 0.5%.

  6. It’s days like today Im glad I am a real estate investor. Even if the real estate market lags or has a small decline I am still okay with it because people are always going to need to rent. Im positioned now so that worst case scenario, I can drop all my rent prices anywhere from $200 to $350 lower and I would still at least break even. And I highly doubt that will happen. Even with the last RE crash the rent market didnt drop that bad.

    I don’t plan on selling any of my rentals, Im just going to ride anything out that comes and hope for the best. But ill need a nice cash cushion for sure to keep me feeling warm and cozy.

    It is crazy to see what is going on though.

    1. Yes, I like real estate for this reason too. There is no constant mark to market.

      My rents stayed flat and went up each year during the last recession due to one year leases. And the irony is that the more people who can’t buy, the more people rent in the short-term, until jobs are lost.

  7. Bryan @ Just One More Year

    I completely and accurately forecasted this and knew it was coming, and now know where it is going….not! :)

    We did our normal rebalance in July and have a 70/30 exposure with stocks and bonds. The good news is we have at least a 5-year window before we considered needing any funds from these accounts. The bad news is we are getting a nice hair cut to our net worth this week.

    I have gone through many of these corrections in my life so far and my prediction is there will be many more in the future.

  8. Stayed pat in 2008, will stay pat again this time with the exception of doubling up on Apple this morning, it has already been beaten down recently before this past few days. With more cash on hand than California’s annual budget (well north of 100B), a fair (if not underwhelming) dividend, a P/E of @12 how can the future not be good for Apple?.

    The other investment I made yesterday was $100 for the Patriots to win it all (8 to 1) in Laughlin, regardless if the suspension stands at 4 games, or is reduced, Brady has something to prove (again) and like a cornered animal, that is a dangerous proposition (for the opposition).

      1. I always enter a stop loss right after making a stock purchase. it’s good to always have your exit plan to take emotion out of it

  9. Any recommendations on strategy of when and how to start deploying our cash positions to best take advantage of this correction?

    1. Agreed. Looking for advice to deploy some cash in this correction. However, not sure the best way to do it. Say I have 10k to invest. Should I do that slowly over the next few weeks/months, anticipating that stocks will just keep going down? Or should I just deploy that all now and wait? and Im not allowed to buy individual stocks, so which ETFs should i be targeting?

      1. Dollar cost average over time, unless you think your are smarter than robo-algorithms currently driving most stock trades or professional traders

    2. -all dressed up with nowhere to go-

      Also cash heavy waiting for correction, have no idea what to with it.


      Jesse Felder is shaving his beard.

  10. BCEastCoast

    Sam when you transfer your money to where you don’t touch it as you mentioned Fidelity or Motif — what type of account do you put it in- another Money Market? CD? On another note I was ready to buy a two family this week – live in one unit for about 3 years until son grads high school. I live in an high end real estate market outside NYC and have to stay until he graduates. I am trying to get on my feet after divorce and will keep the home and buy another one in a few years.
    Only problem is I’ll have to sell stock for downpayment. Or I can stay in this rental and try to save cash ?

    1. Howdy,

      My money market account(s) are w/ Citibank, my main operational bank. Fidelity contributions are now based on my company profitability, up to $53,000, and Motif is regular tranches.

      My main CDs are w/ USAA, b/c when I opened them at the time, they had the best rates.

      Here’s my 2016 Passive Income Update.

  11. Thanks for taking the time to write this, Sam. I’m not making any asset adjustments in my portfolio (all stocks and index funds) and I’ve stepped up my savings rate to prepare for my next real estate investment. I own a home in a popular inner-city neighborhood in Nashville on almost an acre of land. There’s space for more development, so I’m thinking about my options. In the meantime, I’m continuing my side hustles and saving as much as possible.

    1. Sounds good Kate. If you can build up enough income for the next property without touching or worrying about your stock portfolio, then that’s good. It’s good not to rob from the left pocket to pay for the right pocket.

  12. So what’s the best way to invest in equities during a downturn? Just buy VTSMX every week starting now and ending when the market seems to have recovered? What are other people doing who have anticipated a drop? I’ve never invested in equities outside of a 401k/HSA, so maybe this is a good time to get started…

    1. VTSMX, VYM, DVY, SPY are all good index etf alternatives to leg in.

      I basically contribute X amount every month and Y amount to a liquid cash hoard. Whenever the markets correct by more than 1%, I contribute X * 1.5.

  13. I have been 10 percent protective in my portfolio for a long time. IMO – the China deval is going to lead to lower stock prices. By every measure, this is not a value market yet, at least not for US equities although there are a few individual firms that are in value territory. Whatever systematic program you are employing should continue. I am still keeping cash on the sidelines since I think the market will lower 1 month from now.

  14. Call me stupid but I don’t have any spare cash laying around, as I already deployed it in the market. I have enough passive income to cover our normal expenses so barring all my holdings cutting their dividends, things should be ok. I am still saving aggressively so all my job income goes to savings in effect.

    Net worth is broken down by: 20% principle residence, 10% rental property. 15% in a start up, 55% in equities, pursuing a dividend growth strategy. Too bad I didn’t figure this out years ago. If the market continues to shed I’ll be regularly investing in high quality companies, hopefully I can average down on my positions.


    1. Just turn that savings meter to maximum setting to build up the cash hoard to invest new money. Over the next 12 months, I’m sure there will be a lot more of these volatile corrections.

  15. I’m of the opinion that there are some serious deals to be had right now, but only in certain industries. The commodities and energy sectors have been absolutely HAMMERED. From a macro perspective, supply and demand always prevails – albeit timeframe can not be accurately estimated.

    The thing I actually like about a potential market meltdown is that commodities and energy stocks really can’t got THAT much lower. If you have some money in those sectors – or even stay in cash – you can always move it to some of the more “in vogue” sectors once the market bottoms for a hefty gain.

    You hit the nail on the head, though. Leverage can absolutely destroy you if you’re not careful right now, but it can also exponentially increase your gains if you have the liquidity to stick with it.


    1. Commodity prices have proven to demonstrate weakness in underlying demand. But you sure as heck wouldn’t notice a lack of demand for oil/gas driving around the world.

  16. Timely article, Sam!

    I’m pretty much doing nothing right now. I have my eye on a couple very small positions I want to pick up, but otherwise don’t plan on selling out of fear or going all in with my 1-2 years worth of living expenses sitting in cash.

    This correction is long overdue and nothing out of the ordinary so far (other than the drop happened over just a few days instead of a couple of weeks).

  17. Mysticaltyger

    I bought some more shares of one of my stock mutual funds on Thursday. Wish I’d waited until Friday. I’ll add a little more on Monday if the market drops some more. I also have some global bond funds that need to be fed some extra cash.

  18. I am LOVING this correction! Let it come, let it burn!

    I invest mainly in dividend growth stocks (I do have a P2P lending portfolio, my 401k, and an emergency savings account as well). By buying high quality businesses that have grown their dividends for decades, I ensure that any drops in stock price are the results of macroeconomic factors and not the companies’ fundamentals. Coca Cola isn’t going to out of business because of interest rates or Greek debt, after all. And then I buy more, celebrating my ability to own more of a fantastic company at a discount.

    Portfolio value doesn’t concern me. All I care about is income. Dividends. Cash flow. And with 70 companies in my portfolio and more coming, I ensure that I am well diversified to weather any storm. With the range of sectors and industries I have ownership staked in, from food to consumer staples to railroads to utilities, it would literally take a nuclear war for all my companies to cut or suspend their dividends.

    As for side hustles, I would say my blog, but it’s not exactly making me any money yet. Maybe soon. But hopefully when the NEXT bubble buds up and bursts, my blogging income will be able to give me the capital to make even more income investments. My day job’s barely cutting it.

    So let the correction come. ANd let the market stay depressed for a good while. I need these great businesses to sell at discount prices. More passive dividend income for me.

    ARB–Angry Retail Banker

  19. I made a mistake a few years ago and pulled some of my money out of equities in my 401k and put it in a cash like fund. I’ve been slowly pushing it back into stock at market corrections. I’m lucky enough to have a pension and realized that because of that I can be more of a risk taker on my other retirement accounts. I only came to that realization recently and have been moving slowly moving that way in order to account for dollar cost averaging.

    I do need some cash in the next couple of months so I’ll be changing where it comes from. I’ve got some old Saving’s bonds that I’m going to redeem instead of using some stock positions like I was planning to.

    I’m under contract to sell a rental unit (it was my residence when I lived in another state and I’m not a fan of being a long distance landlord but it worked to rent when I ended up with a long term tenant 4 years.) I was originally planning to use most of the money to pay down my current mortgage but I may move that into buying either stock or a new local rental instead.

  20. I have about 50k invested in total market. and about 10k in actual cash. I just started and I’m in my 20s and don’t plan to retire in 15 or 20 years. Should I be worried?

    1. Only be worried that you don’t make a bad decision like selling if the market goes down.

      you are going to need millions to retire and one of if not the best way to do that over time is in stocks.

      1. I would dispute the assumption that you necessarily need “millions” to retire. Maybe you will, maybe you won’t. It depends a lot on your expenses, your debt, your life expectancy, your location (including the tax situation in your area), whether you’ll expect an inheritance, how much you want to leave to heirs, the rate of inflation over the years, the state of social security. It’s something you have to evaluate on an ongoing basis. I retired a year ago at age 67 not having “millions,” but so far I’m doing fine. As for the current market situation, I’m just shrugging it off and doing nothing, since I’m still within my target stock-bond allocation and I have other resources as well. But if you’re young and have the money, buy stocks now when prices are low! It sounds counterintuitive, but in the long run stocks are always the best investment.

    2. I wouldn’t be worried at all. You have so much time to invest and $50,000 is not a lot of capital yet.

      Your gross monthly paycheck can probably make up for your losses quickly. The same cannot be said for many folks who are older and have much larger portfolios.

      You have the opportunity now to consider following my net worth diversification recommendations. I hope you at least read the article by clicking the chart above.

  21. Is it just me or is a 9% correction not anything to lose sleep over? Especially considering how far up we’ve come. The local (Bay Area) news is making it sound like 2007-2008 all over again.

    I have about a third in equities, third in RE, and the rest in cash. I’m holding off deploying cash at the moment, in hopes that we see some real pain in the streets…maybe 15%-20% min down from the tops.

    1. I’m really, really hoping for a 15-20% bloodletting so I can deploy some cash in the market. I’ve already lost a ton in the oil sector and railways, but I’ll be buying more of the same if Wall Street continues to bath in red.

      My crystal ball wasn’t working recently or I wouldn’t have been averaging down on a bunch of stocks over the past few weeks. Just a massive paper loss though, as I don’t plan to sell anything as long as the dividends keep rolling in.

  22. I’m in the Financial Freedom Fighter category. More than 90% of my net worth is in the equity markets so I’m taking a beating. Emerging markets have been a drag all year and it’s only gotten worse. My net worth is still pretty small, though, so with a high savings rate it still should continue to increase unless things get really bad (my 9-5 is like a bond). My cash position is too low right now, but unless I get fired, I won’t have to sell any equities fortunately. Emotionally I’m pretty unaffected by this which should keep me from doing anything stupid. I just don’t log in to see what my actual losses are.

  23. Hi, Financial Freedom Fighter here! Since we’re about 3 years away from FIRE, we’ve been allocating cash on the side to support us for the first 5 years of early retirement. This is a great buying opportunity for the rest of our money. Since we’re diversified, we’re not worried! Great post, as always, this is one of my favorite personal finance sites! Thanks for sharing your wisdom.

  24. 1. Value Line top industries: Companies in each of the 15 or so industries sporting P/Es well North of 15. Well overvalued.
    2. Investors at or near record low levels of cash–less than 4 percent. So no new money to buy on dips and prop up market.
    3. Investors at or near record margin debt, so as market declines, they can’t cover margin call, have to sell, exacerbates market decline.
    4. Dow Theory, one of the market tools with longest track record predictors has been flasinging SELL for months. Finally issued SELL signal a week or two ago.
    5. Fed may still push through rate hike in Sep. (even if they wait until Dec. or Mar.) not that significant except as “wake up call” to everyone.
    6. Devilish duo of High Frequency Traders (HFT) and Goldman Sachs automated software trading exacerbates any decline or swing in the markets.
    7. China economy slowing and data reported by China highly unreliable and skewed to the positive side.
    8. Worldwide commodity slump indicative of slowing not expanding economies.
    9. Oil patch squabble between Saudis and everyone else will continues. Saudis probably win, but do they destabilize their kingdom in the process, so anarchy in the Middle East?
    10. Greece, Russia, Brazil, Mexico, Spain, Portugal (already cited China) may be even Switzerland and France next up on country calamity parade.
    11. N. Korea and Iran can’t seem to play nice.
    12. Thirty year bull market in bonds is over, but will investors rotate into stocks or CDs as interest rates rise.
    13. It truly is different this time. Never has a Fed tried to halt a Depression (which is what 2008 would have become without intervention). We have never trod this path before, so have no idea where it goes or where comes out to.

  25. “For those who understand, no explanation is necessary; for those who don’t understand, no explanation is possible”

    Seen that quote attributed to various, and my favorites are Rob Halford – the appeal of ‘heavy metal’, Jerry Lawler – the appeal of pro wrestling, and Lewis Black – the appeal of Carrot Top, Jeff Dunham, Larry the Cable Guy. I have no explanation for what has happened in the past 15 years, and have no basis for predicting the next 15. But I will leave you with this one…

    “It’s about to get weird!” – Jesus Christ

  26. Ali @ Anything You Want

    I’m probably not going to do anything given the recent stock market slump. I’m young so I have time on my side. I plan to keep investing at the same rate I was before. I have no need to sell any assets in the near future, so for me the downturn could possibly be a good way to buy low.

    1. The downturn is absolutely awesome for us. I just started investing this year after finishing paying off my student loans. A correction right now, provided we still have our jobs, is the best possible scenario because it means we can invest on discount! And who doesn’t love a sale?

  27. I’m definitely a buyer in this market – we send several thousand dollars into the market this week, though it was based on pure coincidence with the market downturn and wasn’t directly related to what was happening. But when you’re building your nest egg for retirement, it’s about the long term potential of your investments, not week or month long rises and dips in the market.

    1. Me too. I had been cash heavy these past few months for other reasons. But now that there is a market correction I will start steadily dollar cost averaging my investments and growing my invested portion of net worth. I haven’t funded my IRA yet this year so I might do that all at once, or close to all at once, right about now! Or I may fund a portion now and the rest in a month.

  28. This correction was a long time coming. Glad I’ve been in 50% cash and now I will start to accelerate my dollar cost averaging. Also good timing if housing can fall a bit, although I expect the bay area to not be affected much due to all the other rich people who have been sitting on cash ready to pounce the moment property values decline… In any case, as a young professional, I will embrace this correction or crash. New things to learn everytime markets roll like this. This is where the truly smart investors stand out from the “only made money in a bull market” investors. First thing to do is to not panic.

    1. Monday’s 1,080 point morning fall in the Dow was truly amazing. It was if the U.S. was hit by another major terrorist attack. Yet, it was just China as the stimulus again.

  29. Gen Y Finance Guy

    I actually get really excited when the stock market gets volatile. Down days bring a smile to my face. I have been waiting and preparing for a correction all year round.

    It started by taking profits in over half of my portfolio of stocks (accross 3 different accounts). Actually I am in 100% cash in my 401K and about 20% cash in my other 2 investment accounts as I type this response.

    I have deployed cash into a couple small CD’s paying 3%.

    I have been paying down the mortgage on our primary residence.

    Yesterday saw a 46% pop in the VIX which translated to a very nice increase in volatility. The likes of a pop we have not seen in what seems like forever. Premiums got very fat yesterday as invester fear levels increased.

    This made for a great opportunity to sell put options below the market. So yesterday I took step one in my plan by selling put option that if exercised would give me an effective price of around $179.50 on the SPY etf. This is about 16% off of all time highs.

    Additionally, I am taking steps to frontload my 401k and my wifes IRA in January of 2016. I think there is going to be plenty of opportunity to by the market at heavily discounted prices.

    Oh, and we have also put some money to work in alternative investments using Prosper for some P2P lending and a non-listed commercial REIT. We like the REIT because it pays a 7.5% dividend and only leverages properties by a maximum 40% loan to value and the properties all have long term triple net leases.

    I honestly feel like the last 8 months has been in preperation of an eventual market down move.

    This past week was just the beggining.


    1. But how do you get to your $10 million goal with these massive corrections Dom?

      10%+ corrections often take 8-12 months to overcome. We’ve just reset ourselves back a year.

      1. Gen Y Finance Guy

        Hey Sam –

        That’s a great question. I have been preparing my accounts for a correction all year.

        Before this recent sell off I was more than 50% cash overall. My 401K is 100% cash. And of the long positions that remain in my other accounts I have been aggressive selling deep in the money calls on the positions to get a decent amount of downside protection.

        I have also been building up a sizable amount of cash in savings and CDs, so my portfolio should be relatively better off than most.

        Friday and today provided great opportunities to sell naked out of the money puts.

        With respect to my goal of $10M, I am still so early in the journey that savings plays a much larger role than anything else right now when related to the changes in my Net Worth.

        My hope is that this correction will actually last longer than two weeks, unlike the one in October of last year. That way we can all strategically deploy capital.

        I don’t find it as problematic as most because I have not been fully invested like most and have not used any margin.

        Yes it sucked sitting on the sidelines watching others talk about their portfolios going up in value all year, while mine stayed relatively flat.

        The next 6-18 months should be very interesting and in my opinion filled with opportunity.

        As a premium seller I thrive in high volatility environments.

        When I get back from vacation next week I plan to put together a post that outlines some of the things I am doing or plan to do to take advantage of what is going on in the markets.

        Love the conversation as always.


        1. At some point, you will feel the crunch of time. When you feel the crunch of time, you might have to take more risks to get that desired return. I’m seen the future, simply b/c I’m older. It’s a race against time.

          Hence, the main way to accelerate the wealth building is to create more income streams. Put 10 containers on the train instead of 1. And one of the containers might become very, very valuable. You just never know.

          1. Gen Y Finance Guy

            I totally agree Sam!

            I am actually looking forward to put on some more risk. But I still believe that what I have done for the first 8 months of the year was the prudent thing to do.

            Like I have seen you say in other comments, you have to do what is right for YOU.

          2. Gen Y Finance Guy

            Sam –

            Also if you have time here is a probability analysis that I did based on the options market back in April after I had built up about $63,000 in cash or about 62% of my equities portfolio.

            The options market had an implied expected return of -2.6%. I decided that near zero rates and extra money to the mortgage was a better use of my capital in the short term.



  30. These are the days that test your resolve as an “investor”. If you’re truly an investor, this might be a time to be increasing your exposure to equities, no? If you’re freaking out and tempted to sell at a loss for fear of more loss, you’re probably not really an investor and need to reassess why you own stocks in the first place. Yes, 100% of net worth in equities is insane to me. Anyone with the balls to do that deserves to become rich, as you can see what they have to go through during these past few days. I have about 30% of my net worth in stock funds and I’m freaking out!

    Sam and readers, do you think a continuing down market will affect real estate prices here? Maybe there’s an argument for real estate continuing to go up, as people see stocks as too risky? Weird times we’re living in right now. . as always I guess.

  31. Sam-

    Would appreciate your insights. Besides 401ks, which my wife and I are maxing out, I’m about 70% in stock and 30% in cash. I dollar cost average every single Friday into VFINX, which I plan to continue doing through the end of the year. HOWEVER, at the end of the year/beginning of next year, I’ll likely be (a) buying a home and (b) starting my own business. I anticipate the home purchase will require about half of my cash and the other half of my cash will go toward the business. I do not anticipate generating any income from my business for 12 months, and realistically expect that costs will exceed available cash, meaning I’d need money that I currently have invested in stocks. What do you suggest? I don’t want to take out a loan or incur any debt, but I have trouble with the idea of potentially selling investments at a loss. Should I dollar cost-average less through the end of the year and just put that money in cash (I’m worried this will screw me long term)? Should I just get comfortable with the idea of just potentially having to sell stock investments at a loss? Appreciate any thoughts you have. I’m very much committed to starting this business at the end of the year. Thanks.

    1. What type of business is it, how much capital do you need to start, and how much capital do you have now? Will your wife continue to have a steady paycheck? These are the questions you must ask yourself.

      Having cash now is NOT screwing yourself at all. I personally plan to try and save as much cash as possible over the next 12 months.

    2. If you have plans for the money within the next 5 years you should avoid stocks with that portion of your portfolio. The potential gains you would miss out short term are relatively small compared to the risk you would expose yourself to.

      I look at my equity holdings with a 15 year horizon. If I am planning a major purchase (house or business), I’ll stock pile cash over the shorter term.

  32. This is a “big told you so” to all of the haters from a few months back. Haha. But you were right.
    I did take out half of my retirement and put it into cash. –Playing both sides of the fence–

    My goal is to retire in Three to Five years. I’m 37. It’s time for me to start finding money in any place possible so I can start investing much more aggressively before prices rise.

    But will this affect big companies and most jobs? The economy, despite the sell-off, seems to be doing pretty good.

    1. Nah, I’m long past “I told you so” :) I really can only logically guess what the future will hold, and act based on those guesses.

      I certainly don’t want anybody losing money, and I’m glad you went cash on half your holdings!

      My hope is that we have enough intelligent readers out here who will share their viewpoints, and each make rational decisions after some careful thought.

      I’ve lost plenty of money, plenty of times in the market to think that I’m any better than the typical experienced investor.

  33. Thias @It Pays Dividends

    I will be a buyer going into this correction. I just recently finished paying off my student loans so the timing for the extra cash flow is working out well.

    One thing I will be curious about, if this correction ends up being of significant duration, how will the robo-advisors do at keeping people from withdrawing their funds. Since the bull market has gone on for such a long time, there are a lot of people who don’t know what it is like to have their stocks go down significantly. Since robos make it so easy to go in and out with your money, I see a large withdrawal of funds because people used to stocks only going up don’t know what to do when a correction hits.

    1. I will be very curious to see how fintech companies do in a downturn. I hope they publish their performance results. Some of the roboadvisors have been the biggest cheerleaders of being fully invested all the time, shunning cash, etc.

      It’s easy to grow a wealth management business and think your product is amazing in a bull market. This will be fun times!

  34. It’s all noise. As someone aiming to reach FI as quickly as possible I’m all in equities, and put everything i can afford into the market every month as soon as I get paid. That has built in dollar cost averaging, and as long as I have an income to cover costs and I’m happy with my ETF choices, the net worth number is a mere distraction.

    1. 100% of your net worth is in equities? Hmmm. May I ask how old you are and when you plan to leave work?

      Will you be buying more? The strategy has certainly paid off for the past five years.

      1. You’re too polite at times, Sam.

        This sounds like someone who just started investing after 2008 and had no idea how soul (and finance) crushing a major market correction can be.

        This past week is just the sniffle that presages the flu. Hopefully, it will be a relatively mild one, and not the Spanish Lady…

        I’ve been moving defensively for the past 2 years. When the final reckoning happens, it’s not going to be pretty.

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