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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.