The coronavirus-induced stock market meltdown created a lot of anxiety and opportunity. Let's look at the benefits! I originally wrote this post on February 28, 2020 when the lockdowns first began. Clearly, the S&P 500 and real estate have done well since. The lesson is to keep investing for the long term. Dollar-cost average during down markets.
One of the beautiful things about the internet is that I've never met someone online who has lost money in the stock market. When stocks are going up, the bulls are out in full force telling everyone how much they've made in XYZ. When stocks are going down, the bears all come out and say they shorted heavily right before the crash. As a result, I think we’re going to be just fine.
Unfortunately, I have about 20% of my net worth long in the stock market, which means I am getting my face ripped off as we speak. The stock market corrections are getting quicker and quicker. This latest 10%+ correction has been the quickest one of them all!
Losing money now is particularly painful because I made a silly goal to accumulate $1,500,000 more capital by September 2022 in order to return to early retirement life.
With the way the market is performing, I feel like I'm walking through a Fujita 3 tornado with a 150 mph headwind. Every financial step forward is one ass-flattening lurch back.
For those of you who are also secretly losing money during the coronavirus pandemic, I thought it would be nice to look on the bright side of things.
The Benefits Of A Pandemic Stock Market Correction
1) Fewer annoying people, more friendly people.
You know the annoying person who thinks he hit a home run, but was born on third base and wants to teach other people how they can be just as rich if they invest like him? To hell with him! Or how about the guy who claims he retired early while posting pictures of his vacation, but is really a stay at home dad who doesn't have enough confidence to admit it. Time to get a job ya bum! Or how about the gal who can't help but brag that she's making $50,000 a month from her tech investments. Oopsie!
A stock market correction silences the folks who can't stop telling everyone how much money they're making every month. Losing money quickly humbles us all. As a result, we should also expect people to get friendlier. From now on, pain and suffering posts will outnumber positive money winning posts 3:1 on FS!
Unfortunately, now that the stock market has rebounded, I've got people bragging to me left and right about how much money they made in XYZ stock or bitcoin. Ugh.
2) You finally get to mobilize your excess cash.
Any excess cash past 12 months of living expenses is probably being wasted, unless you're planning on buying a home or some other large purchase. Excess cash tends to build up due to a lack of discipline or simply no idea what to buy. A stock market correction makes it easier to put your cash to work in stocks.
If stocks correct beyond what fundamentals warrant, you'll also get stocks at a better value. Cash is fine for liquidity reasons, but in the long run, cash tends to always lose its purchasing power due to inflation.
Make sure you deposit your cash in a high-yielding money market account because you can now get a higher interest rate than the 10-year bond yield. The spread has never been greater.
I ended up investing about $200,000 in the meltdown in March 2020.
3) You'll get smarter about money.
When times are good, we tend to forget about our investments, our risk exposure, and our financial goals. Why bother when we're just making money hand over fist?
When the stock market is correcting, we tend to pay more attention to our money because we're afraid we're going to lose it all. By aligning our investment exposure with our risk tolerance and financial goals, we're better able to achieve our goals with more peace of mind. Pain forces you to learn and change.
4) You might stop obsessing over money so much.
When you start losing a lot of money, you tend to start appreciating more of the things you've been neglecting for money. When it starts feeling pointless to go to work for money, you may start appreciating your significant other, your parents, your siblings, your friends, and your children more. You tend to hold on tighter to those people and things that are left.
5) You get to fund your children's 529 college savings plans.
Investing for your children is easier and feels much better than investing for your future because they truly do have a much longer time horizon than you. It's one thing to tell yourself when you're losing money to think long term. It's another to actually have a long time horizon.
I was doubtful about superfunding my daughter's 529 plan because the S&P 500 was at an all-time high. But now I'm happily contributing during the meltdown because she really does have at least an 18+-year time horizon. Nothing is bringing me more financial joy right now than trying to take care of my kids.
6) You get to more easily fund your 401(k) and IRAs.
People with retirement plans should max them out each year. Over a 10+-year period, you will be pleasantly surprised by how much you've ended up accumulating. A stock market correction is a fantastic time to stretch your pre-tax contributions to the maximum.
Below is my handy dandy chart that highlights what the median and average 401(k) balance is by and what you should aim for.
7) Greater discounts everywhere.
The more stocks correct, the greater the discounts you can get when purchasing a car, hiring home labor, buying an air ticket etc. There are so many other things that go on sale when stocks correct. People who feel poorer simply won't spend as much. Thus, if you happen to be financially secure, you can take advantage of these price discounts.
8) Smaller crowds and less traffic.
The bull market worsened traffic and crowds. It's been harder to get reservations at popular restaurants and shows here in SF. Paying $1,000 for a regular ticket to watch Hamilton or $500 for middle-row seats to your favorite NBA team is absurd. If you dare venture out during a pandemic, you'll surely have a lot more room.
9) You get to save lots of money by refinancing your mortgage.
Not only are your real estate holdings outperforming stocks, you have a great opportunity to refinance your mortgages at a lower interest rate. When fear and uncertainty hits risk assets, bonds tend to rise and interest rates tend to plummet. Just make sure not to get a 30-year fixed mortgage if you aren't planning on spending 30 years paying the darn mortgage off!
Check out Credible, my favorite mortgage marketplace where prequalified lenders compete for your business. You can get competitive, real quotes in under three minutes for free.
10) A narrowing of the wealth gap.
Because the top 1% owns more than the bottom 90% of the world, it is the wealthiest among us who lose the most during a stock market correction. As a result, the bottom 90% should feel relatively richer, thereby reducing social unrest.
11) You can catch up with your peers.
Although you might be several billion dollars closer to Warren Buffett's wealth, he's not in your league. Since everything is relative in personal finance, it doesn't feel good when your peers are making tons of money in the stock market while you are not. A stock market correction gives you another chance to catch up. It may even allow you to surpass them if you were investing in a more stable asset.
For example, in 2018, commercial real estate investors in Fundrise outperformed the S&P 500 by roughly 14%. But then commercial real estate investors underperformed the S&P 500 by 20% in 2019. Commercial real estate investors can take advantage of the stock market sell-off by investing more in stocks to neutralize their 2020 position. As a result, these real estate investors will likely outperform equity investors by perhaps 25% in 2020.
The same logic goes for heavy bond investors who have gladly seen their bond holdings rise in 2020 so far. If they want to change their risk exposure, they can simply sell bonds and buy stocks, or buy more stocks if they have the excess cash.
12) Better work-life balance.
Most people admit to going to work sick because they either feel too guilty staying home or have this relentless desire to make more money by climbing the career ladder. I clearly remember not wanting to miss workdays during the last quarter of each year because that's when year-end bonuses, if any, were decided.
With the coronavirus, there will be a backlash against employees who come to work with even a slight cough, let alone a fever. Therefore, more employees should be more comfortable taking all their vacation and sick leave days. If more employees took all their sick and vacation days, then its perceived negative impact on career progression should lessen.
When you couple increased pressure not to go to work when sick with a declining company stock price, the end result is a better work-life balance.
13) A chance to improve our healthcare system.
It may cost some people thousands of dollars to get checked out for the coronavirus. As a result, people with less financial means or terrible health insurance plans may not bother to seek medical treatment for illnesses. Therefore, more people will end up getting sick because some of these folks will have no choice but to work sick at their lower-paying jobs.
As people get sicker and poorer, the obvious solution is to have cheaper and better healthcare. Viruses do not discriminate between rich and poor.
Unfortunately, my family is paying a whopping $2,250/month for monthly healthcare insurance in 2021!
14) An increase in worldwide-hygiene.
Supposedly, 30% of women and 60% of men don't wash their hands after using the bathroom. Further, we all know plenty of people who got to work unwashed for days. What is up with this lack of hygiene people?!
The coronavirus should encourage people to shower more, shampoo their hair more, cover their mouths when coughing and sneezing more, brush their teeth more, floss more, gargle more, and so forth. The United States might even finally adopt Toto Washlet toilets in public lavatories as standard.
It's nice to no longer feel embarrassed wearing a mask! This is commonplace in Asia. Nobody will ever look at you funny learning a mask any longer.
15) You have a chance to make a lot of money.
Perhaps the greatest benefit for a stock market meltdown is that you get a chance to potentially make a lot of money when the market inevitably rebounds. But to do so, you must take risk and buy.
In my post, Why It's Harder To Get Rich Off Stocks Than Real Estate, I mentioned an example that I would only buy more Tesla stock if it gets below $700/share. Thanks to the coronavirus-induced meltdown, I've been able to accumulate more shares again.
In 10 years, if Elon executes his plan, I'm hopeful Tesla stock will be much higher then. I bought about 10 other names and the S&P 500 index as well. But I always buy more normal when the S&P 500 is correcting more than normal.
There are winners and losers in every stock market meltdown. The winners in 2020 include investments that benefit where more people stay at home or use more cleaning products. These companies include: Netflix, Zoom, Clorox and many others.
Then there are some cities and states that may benefit from greater migration as people flee densely populated cities to work in lower-cost cities with fewer people. The coronavirus pandemic should help support my thesis of investing in the heartland of America.
16) Total deaths are declining!
After more than two weeks of shelter-in-place by many communities around the country, there is a noticeable rejuvenation of life. I see more animals roaming around my neighborhood. Pollution is down. Car accidents are down. Deaths from other infectious diseases are down. Although it is absolutely tragic that people are dying from Covid-19, it is good we are see much less fatalities as a result.
Appreciate The Stock Market Meltdown While It Lasts
If you are able to survive the coronavirus meltdown of 2020, you will be able to tell your children all about it. You will have withstood the quickest correction in history. And if you don't survive, well, at least you had fun while it lasted.
Hopefully, you guys held on and invested money during the coronavirus-Induced Stock Market Meltdown. The S&P 500 closed up 16% in 2020 and real estate is rebounding.
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.