Most of the time, being really rich is great (not that I’d know, but I assume).
Right now, I’m thanking my unlucky stars that I wasn’t fabulously wealthy when I took a sudden interest in investing $1,560 of fun money in a few Vanguard funds.
Because had I been really rich, I probably would be down a lot more money than I am right now (because I would’ve invested a lot more “fun money”).
I sure am feeling it in my 401(k), though; I track that balance month-over-month since Southwest matches at a very generous rate and it used to climb a lot faster than it is right now in my aggressive allocations. This is definitely not my "fun money," it's a sizable portion of my income that I absolutely need someday.
In short, the stock market is in a period of ‘corrections.’
The NASDAQ Composite Index hit an all-time high of 8,109.69 on Aug. 29 of this year, and is now—and this is an industry term—in the shitter.
Here's a blurb from an awesome daily finance newsletter I read that paints a nice, snarky picture (excerpted on Dec. 21):
It was another face palm-inducing day on Wall Street, where volatility has become as commonplace as Patagonia vests. Let's survey the damage.
Rather than trying to get into the nitty-gritty stuff (head to the MarketWatch link above for that), I want to talk about how I’m feeling about money and investing right now in the midst of this low period, and the implications for someone’s hypothetical impending retirement.
A big market drop when you’re 24 and have a couple thousand dollars invested is mostly a ‘shrug it off’ annoyance. Who cares? You don’t need this money for decades. If you just started investing this year like me and dipped a proverbial toe in the water, you might feel a little discouraged after seeing things reach an all-time high then drop lower than you started.
After all, here’s what my Robinhood balance looked like when I started (ignore the chart, just look at the numbers at the top):
There I was: optimistic, ready to roll—wanting to cut myself a slice of that free money pie. And for awhile, it seemed too good to be true. Here's what it looked like when things were riding high only a few months later (I was convinced investing was magic and I had found the secret to free money):
That was (mostly) it's peak for me. A nearly 11% increase. Alas, now we're here (this screenshot was taken on Dec. 20; who knows what'll happen by the time this gets published):
Wah. $108 (almost 7% down) for the year.
UPDATE: It's Dec. 26 and I'm down to $1,430.61, -8.29%. On Christmas Eve at the low point, I was down almost 13%.
Like I said, this isn’t enough money to really care about. It’ll pick back up. I’m not concerned. But it definitely woke me up to the reality that, had I invested my entire net worth in the market, I’d probably be a little more rattled.
It made my guaranteed 4% APR interest checking account with the credit union look a whole lot more attractive, because that account has paid out hundreds of dollars in interest over the last few months.
It’s almost akin to gambling—wanna go for a potential 8% (or higher) return with a risk of an equivalent loss (or worse), or go for a guaranteed 4% return? This is an oversimplification that depends on a LOT of factors like allocation and timing, but I think the analogy stands.
That’s the benefit of being young—timing doesn’t REALLY matter. You know you have all the time in the world (practically speaking) for things to rebound, if you’re saving the investments for later in life.
But if you’ve been planning to retire in a month or two and you’ve got hundreds of thousands (potentially millions) locked up in the market and there’s a big 8% dip with no recovery in site…well, that looks a little different.
It’s risky stuff. Overall, it’s probably a safe bet to place, and absolutely better than saving money in low- to no-interest savings accounts, but nothing’s ever a guarantee. Average returns—even if they’ve caused your investments to grow by leaps and bounds for decades—can be wiped out in a big market crash.
I know people personally who lost hundreds of thousands of dollars in 2008-2009 and took years to recover (I remember in middle school my parents told me, "You can go anywhere you want for college! Even Harvard! We've been saving for college for years!" and after 2008, it was, "OK, pick a state school,"). Roll tide.
The consolation is that they likely wouldn’t have had that much to LOSE in the first place had they not played the market, but timing matters A LOT when you’re going into retirement and banking on that nest egg being intact.
So while things are shitty right now, that means it's the best time for young people to BUY, BUY, BUY diversified index funds! They're cheaper than they've been all year, right now. Like a Black Friday sale on stocks.
And then, for the love of God, don't check your Robinhood accounts for a few months. Let it ride. If you want to start your own "fun money" side account in Robinhood, use this referral link and we'll both get a free stock (usually they're small stocks, but I know a few people who have gotten a free Apple stock and that's pretty cool).
Join me next week on Jan. 2 for my 2019 Financial Resolutions—we're getting specific about goals and how I plan to get there.
The young woman's money guide for all the things you're too embarrassed to ask your friends. Build the life you thought you were too broke to afford through managing your spending habits, travel hacking, and simple, smart investing.
Full-time Brand marketer at Southwest Airlines, part-time Yoga Sculpt teacher, occasional Waffle House Model and reformed materialist.
Download my free budget tool
Rent or buy calculator
Invest with Robinhood. Get free stock.