I somewhat freaked out the Debt Free Diva during my interview, some time ago, when I told her I lost some $200,000 in my first 401(k). That was my first lesson in investing. In hindsight probably not the first thing to bring up when talking about building wealth. Don’t worry, it all came back. Just as I’m convinced the $100,000 my portfolio dropped in January will come back (as we speak half way there). All of this sounds scary like shit right? Yes, but it doesn’t have to. I look at it from a different perspective. As scary as a portfolio drop of one hundred thousand sounds, what if I told you that, for my current $900,000(ish) portfolio I “only” invested some $450,000.
That’s right, even in the midst of somewhat of a correction and after having lived a full year cashing in stock for living expenses, half of my portfolio is profit. Unrealized profit to be exact (it could go up and it could go down). So when I say my portfolio dropped by about a hundred thousand in January, what really was saying is, instead of having $500,000 in unrealized gains I only have $400,000 in unrealized gains. Not a single cent of my hard earned salary that I put in the market over the years was even remotely affected by the current downturn.
This is why I’m also a firm believer of keeping my emergency fund in the stock market. When I had to pay hospital bill totaling up to $12,700 last year I cashed in stock. Stock I may add, I only paid a little of $9,000 for.
Yes, investing comes with risk but if you’re an investor investing for the long term the odds are in your favor. I don’t know what the future brings and things do look a little off-kilter at the moment but over time, the market has gone up. Dave Ramsey will tell you it is over 12% over any given 10 year period. Honestly, I certainly didn’t get those returns and I’m sure those numbers meant very little the guy that had to retire in 2008. The market does tend to go up. For me, it has been an average of close to 8% prior to my retirement. Not too bad and certainly better than what my bank account returned.
So what am I saying exactly? Well, yes investing is scary but.. You have to put things into perspective and sometimes you need to look at the situation as a glass half full situation. If you’re still early in your investing career, consider what is happening today as a buying opportunity. That also means that if you’re early in your investing career, always keep some cash on hands for
corrections opportunities like the ones we’ve seen recently. I’m at the end of my active stock buying days and am actually living off the fruits of my labor investments. I wish i did have some cash to buy some more stock today. For now simply stomach the downturns and remind myself that it will take a 50% market drop before I start cutting into my initial investment.
At this point, I should probably point out I’m not a certified financial adviser. Investing does come with risk and the past performance is not indicative of future results. before you start investing you should probably seek advice from a fiduciary financial advisor.
Good luck reaching your financial goals.