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If I were 40 years younger, I might be rattled by the stock market selloff on Thursday, the day after the President’s tariff announcement. Back then, I was living in a studio apartment above a garage on an alley, trying to make ends meet while saving to buy a home. My investments were mostly in the U.S. stock market and cash.
Today, Rachel and I find ourselves in a different place. We’re a retired couple whose house is paid off, and our investment portfolio doesn’t only consist of U.S. stocks; we also own plenty of bonds and international stocks that helped cushion the selloff yesterday. Our broad-diversified portfolio of 45% stocks, 45% bonds, and 10% cash will never earn us bragging rights in the investment arena, but it does give us a steely spine in times like this.
I’m not advocating for an asset allocation like ours because we all have different financial goals, time horizons, and risk tolerances. But this old-fashioned approach of investing in low-cost, diversified index funds spread across U.S. stocks, international stocks, and bonds seems to have worked for us over the years.
I don’t think anyone knows how long this economic upheaval will last, but I do believe we have enough cash and high-quality bonds to ride out this stock market downturn. More importantly, I sleep well at night.
At age 73, I realize there are other things in life that can be more unsettling than the horrendous selloff we just experienced. Losing your health or a loved one can put things in perspective when facing a down market, especially when holding on to diversified investments usually doesn’t result in a loss.
I admit we did make one emotional decision before the tariffs took effect. We sped up the purchase of a laptop computer and an iPad prior to the President announcing his tariff policy. But that will probably be the only thing we’ll do in this economic environment, other than rebalancing our portfolio to our target asset allocation.
“Keep calm and eat some pie.” I have a photo of that sign on my blog. It works!
Funny enough, as a (relatively) young person here (45), I have no worry about the latest selloff, but I fear that I might if I were your age.
I have more working years ahead and more money to put into the markets over the next decade. Since I’m 100% confident that stocks will be back (and better), I’m buying now.
I think a fairly young person who is not making a lot of money, is trying to save to buy their first home, and has all their investments in U.S. stocks and cash might be feeling a little rattled right now, knowing that their dreams of owning their first home might be further away than they thought.
On the other hand, my wife and I are fortunate to own our home, have a sound financial foundation, and possess a well-diversified portfolio that will allow us to ride out the stock market downturn.
Friday night before Black Monday 1987 I got on the phone with my brother. We agreed to ride out the fall.
22.6% in one day. After the 4.6% on Friday. So that was a third of my net worth in one quick swoop. And not just paper losses as I had to draw on my savings in 1988.
Have ridden out many similar shocks over the years.
Keeping an adequate reserve is the big lesson I got from 1987, as my father fell ill and I had to take a distribution from my nascent 401k to pay for airfare, etc. Did we recover from this loss? Sure, and then some. Also recovered from several boneheaded investment decisions over our lifetimes and now am more reflective about what it means to have a diversified portfolio.(Still annoyed at 2022 when virtually every asset class lost value.)
We bought a “new” used car last year after one kid had an accident. That 2019 car is nicer than the one I bought new in 2023 when some electronic and other components were in short supply (remember the run up in used car prices 2020, 2021?)
To celebrate my first kid graduating from college next month, I recently bought her (and her siblings) a “new” refurbished iPhone. She got her first phone at high school graduation four years ago.
Reduce, Renew, Recycle, isn’t that a motto of the environmental movement? And hasn’t globalization spawned the rise of “fast fashion”, the demise of American factories, and a huge reduction of quality furniture built in North Carolina? For all the benefits, some changes since the 1990s have been unfortunate for people and places in the US and elsewhere (Watch any documentary about “recycling” plants in foreign countries with weak workplace and environmental protections.)
Agreed, Dennis, it’s other losses that are truly catastrophic (loss of health, loss of loved ones) where recovery is not possible. I’m grateful to have enough most of the time, and friends/family all of the time. Perspective is the watchword of the moment.
In 1987 I was allocating all resources to my internally capitalized business. I’d been involved in numerous recessions since 1959. My Ah-Ha moment came with the Dot-Com bust which nearly wiped out my entire retirement portfolio. It was a great teaching moment.
You have obviously not forgotten, but did not mention the fourth R, but obviously utilize it.
Rethink- be conscious about what you are considering buying.
I might agree if these so-called tariffs being placed on American goods weren’t actually just deliberately mislabelled trade deficits. Take the Canadian diary tariff. We never get close to the cutoff limit for that. Meanwhile we’re slapping major tariffs in countries just because we choose to buy more goods from them than they need to buy from us. Americans producers can’t keep up, and you know what? That’s tough, but the world shouldn’t have to bear the burden of their inability to compete. Yet that’s what we have. And it will get worse now because no one wants to buy products from a country that’s hell bent on bullying other countries into doing its will. I know I’ve never been less proud of my country and the example it’s choosing to set than I am these days.
We are planning a trip to London and Scotland (my great grandmother immigrated from Aberdeen) and I am worried people will know we are Americans. In the past when we have traveled I have always been afraid of the reputation of the “Ugly American”, and am always on my best behavior to try and mitigate this opinion of us.
So, *were* you rattled in October 1987?
Cinn, i had just made my first huge $3k investment into the market a month of so before black Monday. I was freaked out by the event, but I learned a lesson about the resiliency of the market and have not been bothered since. I know many others on HD have similar stories.
As a veteran of numerous shocks, I’ve learned that if you’ve got cash and time, you should usually just wait them out. Markets always rebound, sometimes slowly, sometimes rapidly. But they DO rebound. [However, if you have cash you want to invest, you’ll have to decide for yourself when the market is “low enough” to jump into the pool for that. And you might have to suffer a further dip after jumping in before things recover.]
I note that as I write this, the downturn seems “major”, but if you look at the numbers, most of us are still playing with house money, not our own. What is left in my funds seems to be around the same number I had last year when I thought the S&P 500 hitting 5,000 was a major achievement. And I still have a big return on a historical basis on what I have saved and invested. So I worry even less. I’ve seen a few people claim that this downturn is “different”. But IMHO, it really isn’t.
Again IMHO, tariffs are intended to cut the roots out of a global problem for the US – where many countries try to protect their own turf and make it hard for the US to market American goods there, but feel free to play on our turf whenever they want to, costlessly, with long term negative competitive and strategic repercussions most of us either ignore or fail to comprehend. If the tariffs work, things will come back. If the tariffs don’t work, the policy will have to be abandoned, and things will still come back. My guess is that the tariffs will work in part (perhaps country by country), and if that happens, again things will come back. Some of the questions peripherally related to tariffs are these: (1) If other countries’ tariff barriers come down, are American products of high enough quality to succeed there? (2) Can American products be price competitive in those re-opened global markets? (3) Can America actually rebuild itself in many of the strategic markets where its skills and facilities have eroded or vanished? (4) Will the gains ultimately be able to overcome the financial impacts we have just seen? But most of the questions persist with the status quo and other shocks – with or without tariffs.
Like many others, I am fundamentally suspect of tariffing. But there are sometimes good reasons to use this tool, particularly if one doesn’t have many other ones to use, and accepts they should not be permanent. All the news reports report the negatives, as usual, but I encourage readers to think past the pundits, and for yourself. As my old Spanish teacher used to tell our unruly class as she entered the room, “Calmate!” Calm down. Chill.
“but if you look at the numbers, most of us are still playing with house money, not our own.” So it is for me.
I reshuffled my portfolio a couple of decades ago. Since then, I added regularly over time and last re-balanced in 2021-22. Even so, my growth allocation is a bit greater. Yet Morningstar’s X-Ray tool indicates I have a “core” portfolio, with significantly less “aggressive growth” than the S&P 500. I am holding more cash than necessary on a percentage basis. I do take annual RMDs.
I’ll be glancing at my portfolio from time to time but have no compulsion beyond curiosity to do so.
My situation and allocations are darn near identical to yours. 🙂 See my post on Tariffs and our retirement assets – HumbleDollar
Having a wussy asset allocation is one similarity; I’m even more chicken than you guys at 60/40 bonds/stock. My motto at this stage of life is, the fixed-income is for me, the equities for my survivors (but they’ll probably get a lot of the bonds too).
For sure this sell off is rattling most of us. However, after 60 years of investing, I try to remain calm, but the mind wonders, I am well situated to outlast the freefall. At 5% loss per day, seems most our investments will be gone in a month! I have learned that the best thing you can do in a period like this is to stay the course. I had a diversified portfolio like you, but over the last 20 years I converted to closer to the Buffett portfolio where he said, if his wife out lasts him, she should have 90% S&P and 10% short term government bonds. We chose 85% S&P and 15% cash. The cash is to tide you over until the downturn passes. We are not there yet, but down to 10 stocks, and 6 S&P like ETF’s. Now is the time to sit tight and watch, and if you have cash to invest, from your 85%, then time to Buy.
William,
You give good advice: we should all remain calm and not overreact.
Like you, my wife and I are in our early 70s. We ordered a new car and negotiated the price a month ago and are awaiting delivery. I also decided to purchase a new camera and lens set in anticipation of tariffs.
We also have a diversified portfolio with largely equity index funds in taxable account and TIPS in an IRA equivalent account. When the polls indicated a change in administration last September I did fund a 5% position in a gold ETF. When/If there is a 20%+ drop in the market I will consider moving that back into the market.
I hope that the “old-fashioned approach” to the market as you say prevails, but feel as uncomfortable now as I felt in 2009. Little has been mentioned in the financial press until recently about potential government manipulation of COLAs for TIPS or repression of interest rates on treasuries. Only the standard dogma “stay the course.” Having cash and some gold might be a good feeling.
Great post Dennis. Like you, not too concerned about the markets. My wife and are 8 years retired, and are 50/50 bonds-cash/stocks. We have no need to touch equities (except for dividend distributions) in the near future or perhaps ever, so we aren’t worrying about the market. It’s kinda like not worrying about the real estate market, unless you are at the moment of buying or selling- the price swings in between don’t matter. We are taking monthly IRA distributions to live on til SS kicks in. T-IRA is all Treasuries/cash so nice to have that ballast in place for the current market turbulence. Main issue we have is timing the purchase of items needed for some modest size home improvement projects we have planned. We are trying to prepay for some of the larger components of the project. We may have to store some of these items for several months, but we’re able to do so to avoid possible sticker shock later on.
Bill,
When we remodeled our house during the pandemic, we did what you’re planning to. We bought some of the items ahead of time because they were hard to get. The store from which we bought our appliances was willing to hold them for us until we were ready to install them.
Thanks, Dennis. This was good. We are staying the course also. Chris
Wow Dennis we are like investing identical twins. Our portfolios as you outlined are identical (15% of or portfolio is international equities). Yesterday the Morningstar US Equity Index dropped 5.08%, but our portfolio only dropped 1.48%.
Also luckily for us in the past 6 months we had purchased a new laptop (the previous one was 10 years old, and running Windows 10 which was soon to be no longer supported), a new iPad (the old one was 10 years old, used for investing, and didn’t have enough memory to download updates), a new Toyota imported from Japan (replacing a 10 year old Subaru with 100k+ miles and was becoming very unreliable), and a new iPhone (Xmas present for the wife as she wanted a better camera- it’s the 21st century you know-I still have my XR).
This was an unusual spending spree, but you can see that sans the IPhone all were necessary replacements. I believe on many occasions it has been written here that a lot of investing has to do with luck. In this case it’s luck that we purchased these items before WE, not the manufacturing country, had to pay a heavy tariff.
David,
I understand what you meant about lucky purchases. We felt lucky when we bought our new car in 2020, just before the pandemic caused a shortage in automobiles.
We bought our new Toyota Tacoma in April of 2020 to replace an 18 year old one. There wasn’t a large inventory, but I love the one I bought. We bought it before the severe inventory shortage due to the computer chip debacle.
Good words of calm that many should heed. And yes, there are other things that are more unsettling than a market decline. Good health to all!