Now is the time of testing…..

Well, it has been an interesting couple of weeks in the market! My beginning of month post noted that I was down about 5.4% for the year on March 1st. Little did I know it was going to get a lot worse!

For the second time in 15 months, folks in the FIRE community (and everyone else) are dealing with a double-digit sell-off of the market. As of close-of-business Monday (Mar 9) the old FIRE standby, VTSAX (Vanguard’s index for the entire market) was down -19.3% from its previous high. The Price-Earnings ratio for the S& 500 in mid-February was 24.24. By Monday, March 9, it was 20.67. Note the historical P/E ratio is around 15, so we still have a long-way to go until the stocks are priced where they are historically.

So what to do? This is why I call this “the time of testing.” So many people in the US and the FIRE community have gotten use to the markets consistently going up, with a few “hiccups,” but nothing substantial. Now two large events within 15 months may have you questioning if it is not time to play it safe, buy some gold, or shift resources to bonds/savings. It would be the “safe play.”

Do not fall for it. All the financial advisors I have talked with, in 2000, 2008 and Dec 2018 say the same relative thing. Have your planned allocation and investment plan, based on your risk tolerance – and stick to it. Continue to invest when the market jumps up, or when the market drops like a stone. In the end, you will be rewarded.

I’ve often heard the story that, while the stock market returns around 10% a year, on average, the typical investor only gets half that. This is because when the market drops; they jump out – solidifying their losses. They then wait to get back in, and miss many positive gains before they finally jump back in. It is for that reason that most successful investors take the “buy and hold” strategy of investing. Warren Buffet is known for saying that the optimum holding period for him is “forever.”

So we are all being tested right now, especially those who are close to retirement, or who have just retired (sequence of return risk?). Will you pass the test?

Wealthy Accountant’s comments on the current situation

Mr. 39 Months

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