It’s Halloween and the Dow is at a breathtaking 23,377 roughly 100 points off of the all-time high reached earlier this month. Yes, I’m a little spooked at these heights and so are some of my friends I’ve been talking to recently. None of us participating these conversations are stock brokers or financial advisers; just motley fools that can’t believe our good fortune and trying not to screw it up. We’ve read FIRE blogs, watched CNBC, and heard the low cost index and diversify advice so many times prior; but we still get acrophobia. And why wouldn’t we? My crew is filled with cynical forty-something Gen Xers who experienced the euphoria of dot com fever in our 20’s , purchased homes with little or no skin in the game in our 30’s, and watch it crash and burn. . . twice. We don’t need investment advice; we need group therapy.
So here’s a short list of things I tell myself when I get spooked (also because list posts are cool).
Diversification works and the data supports the maxim
So if I feel like I have to take an active role in my investments right now, then it should be to review my diversification plan and re-balance if the portfolio has deviated more than 5% in either direction. My standard plan is to review and re-balance once per quarter. However, if I’m feeling spooked then I allow myself the latitude to revisit the diversification ahead of schedule.
Cash is King
I like cash. . . period. It’s a soft warm blanket that soothes my fragile psyche. I don’t let the opportunity cost trolls scare me into draining my dry powder. I’ll show them f-ing “missed opportunity costs” during the next market downward death spin! Mrs. R and I took some great vacations, bought cool toys, and cheap stocks starting in let’s see when was that . . . 2009.
Missing the best days in the market should scare you
I remind myself that if I had missed the 10 best days in the S&P 500 between the beginning of 1995 and the end 2014 my annualized returns would have dropped from 9.85% to 6.1%. (See here and the chart below for more info).
You don’t need all that money today
It doesn’t matter if the market goes down because that’s what it does and then it always goes up . . . eventually. Don’t believe me? Then take it up with JL Collins. At this point in my life there’s a lot of our money invested in the market and we don’t need it today. So I revisit our spending and make sure we are still being smart about the annual budget, and then I remind myself that Cash is King! We keep enough dry powder to wait for Mr. Collins to be right.
The Dow is not the market, just a headline maker
The Dow Jones Industrial Average was created in 1896, represents only 30 companies, and does not measure “industrials”. The news media loves the Dow because the numbers are big and so are the price swings. It’s the “if it bleeds it leads” of the financial news world. Bottom line, ignore it just like you should ignore most other urgent “breaking news”.
Now go put on your costume and eat some candy. Happy Halloween!