Dealing with Fluctuations in the Market – Without a Meltdown

If you keep up with U.S. politics at all, you’ll probably notice that we’ve had a pretty weird year or two in terms of the stock market. Ever since a certain political figure started tweeting at all hours of the day and night we’ve seen some pretty severe swings in the stock market.

It seems like every time a White House official quits (or gets fired) the stock market takes a tumble. Most of these swings seem to correct themselves pretty fast, but not all of them. In March, after a few months of steady growth in our 401ks, we took our first real loss in a while. Between March 1 and April 1, we had a 3% loss on one of our retirement accounts.

That can be pretty fucking scary.

I was out to lunch with a friend who I got interested in Acorns and he confided in me that he checks his Acorns balance every single morning. Wake up, roll over, check Acorns.

Beyond the fact that I’ve apparently created a monster, we talked about the swings we saw in the market in March and the fact that for a few panicked minutes he thought about taking all of his money out of Acorns.

My friend’s panic is not uncommon. I have had very similar conversations with other people and they all confess to wanting to pull their money out of the market and stash it under their mattress. I get it. It can be terrifying to watch the money you’ve worked so hard for (and that you are counting on to be there) disappear at an alarming rate.

When the Great Recession hit in 2008, some people lost upwards of 30% of their retirement accounts. It’s been a decade since the housing crash and the resulting echo that brought down the S&P, so let’s revisit that time – and the intervening years.

10 years ago, my husband and I were barely even thinking about retirement. Both of us were just trying to find a job, any job. We graduated in 2006 and barely squeaked by – landing jobs in a job market that was just about to crash. When the housing bubble burst, companies stopped hiring. About 6 months after I landed my first real job, a hiring freeze locked us all in to our salaries. Raises were non-existent. It was a demoralizing time.

Luckily, we were cheap labor and so we managed to hold on to our jobs. Our friends who were a year or two behind us in school were not so lucky. Some of them are still very underpaid.

Now, imagine being in your 30’s or 40’s during this recession. You’re in your prime money making years, funneling money into your 401k so you can retire early and then BAM – 30% of your money is just gone!

What do you do?

People who were greatly affected by the recession generally fall into two camps.

1. Those who panicked and pulled out of the market entirely or moved their investments to more conservative strategies

2. Those who rode out the recession and had the time to do so.

According to this article from the U.S. News and World Report only one of these groups is sitting pretty atop their 401ks. Can you guess who it is?

If you guessed group that it was group 1 you are wrong, my friend. Totally wrong.

Most people who pulled their money out just doubled down on the loss. Unless they started investing in dirt cheap real estate, those more conservative funds haven’t made nearly as much money in the intervening decade as moderate or high risk funds.

The folks who rode out the recession, on the other hand, are doing well and have recovered (and then some) since then.

However, just stating those facts isn’t enough. There were some people who literally couldn’t afford to ride out the recession. These were the folks who were very near to retirement and suddenly saw so much of their nest egg go down in flames.

If we abide by the 4% rule, that means, that those folks – should they have retired when the planned too – would have seen their monthly income in retirement drop significantly! Maybe so much that they would no longer be able to retire.

What can we do to avoid that? Well, the usual tips and tricks are to move your money to more conservative stocks when you get near to retirement. But, honestly, I think it’s all a crap shoot. Really, there is no way to truly avoid another recession if you have money in the market. Timing the market never really works out.

Instead, my recommendation is to over-save. Save more than you think you’ll need. Be prepared for any eventuality. Monitor your money closely. Lower your living expenses in retirement.

What do you think? Are you scared of the market? Do you distrust 401ks or IRAs? Are you psychic and do you have a bead on how the market is going to swing (call me if you do!)?

Me, I’m just going to over-prepare in the hopes that I won’t get sucker punched if another recession were to occur.

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