Welcome back to the bloodbath my men. Or maybe things have totally resolved themselves since I last posted about how you should think during a big economic crisis, market decline or period of financial trouble. Either way, here I’m going to give you a description of what I do when there are the stock market is in decline.
If you have not spent time on part 1, stop reading this part, it will do you no good without a mindset that is at rest in the LORD’s provision and control. Even though I’m going to tell you what I’m doing during this market downturn, all of my tactics could easily sink your ship if they are mimicked from a place of panic.
Ok then. Here is what I am doing right now as the stock market declines. It is not what you should do (disclaimer alert!), but perhaps it will give you some ideas to work with as you consider your own course of action.
1. I move some of my investing dollars into business ventures
My savings and investment rate does not change at all during a big market drop, but I don’t necessarily rush into the stock market at every dip and try to double down either. Instead, I like to move the money that might have been previously going into a plain old S&P 500 index fund and put much of that (but not all, see below) into business ventures. These come in all stripes!
So far this year I have partnered with some guys to open a tea company, and I’m looking at four other opportunities right now that range from tech startups to food and beverage manufacturing. I tend to invest in things that I know I’m able to add value to, that carry the prospect of interesting work in the future for myself (I’d love to see one of these ventures take off and require more of my time) and, of course, that offer a good risk to return for our family. I also like startup and small business investing because it can be less dependent on the broader economic climate. Because I know how to make a software company run when times are good or bad, I am often less sensitive to the broader economic climate.
That doesn’t mean that I deploy these dollars with no thought towards where the economy seems to be going. It may not be the right time to start a home construction supply business when inventories are above their normal levels, for example. Which brings me to my next tactic:
2. I watch the real estate and land market for opportunities as stock investors panic
Real estate is a cool asset. Much as with investing in business ventures, there is usually money to be made here regardless of the market trajectory. And, real estate often moves in cycles that are opposite those of the stock market. Personally, I have it on my list to acquire multi-family properties near my home. The benefits of land ownership are many. Because of where we are financially at the moment, I’m watching for deals that are too good to pass up on, but I’m not certain that I’ll be making a purchase this year.
Previous forays into land lording have taught me that one should not expect this to be a passive venture. Buying real estate is a lot of work, whether you’re flipping homes or holding property for rental income. The returns can be great and the odds of your investment becoming worthless are quite low, but if you do poke around in this category know that you’ll need to roll up your sleeves in order to get max value from your investment.
3. I’m still putting my 15+ year money into the S&P
Dos this surprise you? My strategy for investing in stocks has always been to put money there that I have no intention to touch for a 15 year time horizon. A massive drop in the market doesn’t change that at all – I expect some volatility, otherwise I’d put my short term savings in the stock market. Since 1973 the S&P 500 (a group of stocks in 500 large companies in the US with valuations of at least $6 billion) has not ever lost money over a 15 year period. Even when that index lost 43% in one year (2009), if we look at the 15 year period from 2006 until today, the annual return has been 6.6%. Whoever gathers money little by little makes it grow – I’m very happy with a 6% return on my stock investments.
If you’re buying any securities because you think you know something that other investors don’t know, I’d recommend some deep reflection. The truth is that individual investors have little chance of beating the market. We’ll explore this topic at length in a later post, but my quick tip is that low cost index funds are the ticket for the average Abrahamicly-minded stock investor.
4. I’m keeping my salaried job as I wait and watch
Just like a plot of land or a stack of money, a stream of income is also something of value that you should steward. I spend a great deal of my mental energy considering how I use my time, and currently I sell a whole bunch of it to a company in exchange for a nice salary. As we use that salary to acquire assets and invest, our conversations around work have changed. Mrs. Abraham and I used to think about whether we’d have enough to retire. These days we talk about how we can best steward our time – selling it in exchange for salary, or spending it on other tasks (which may or may not create financial capital).
For the last few months we’ve been using 100% of my income for investing and giving activities. This has been fun because we know ahead of time that all of the money coming in from my salary is going to be used to build things that we believe in. It also means I feel very free to decide that my time could be better used in other ways, and it wouldn’t mean a big lifestyle change for us.
When the market tanks, my salary allows me to keep the quiver full of arrows. This can provide opportunities to take ground while the rest of the world is in a panic! But you don’t have to have reached financial independence to apply these lessons. For someone who is in a totally different situation, a downturn can be a time to focus less on how your investments are doing and more on how to bring in more income that will give you the same opportunities. Try a productive hobby. During a downturn, you can use many of the same income boosting and expense reducing tactics that you would use to pay down debt to create financial margin. Keep your eyes peeled for opportunities to deploy that extra margin, be it $100 or $10,000.
So that’s it amigos. I’d love to hear how you respond to dips in the market! Get thee to the comments section…