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The last few weeks have been tough on investors. Wall Street has been taking it on the chin—thank you, Omicron, thank you, Mr. Inflation, and thank you, Mr. Fed Chairman for signaling that the Fed will soon be raising interest rates.
Well, regardless of what’s made investors jittery, stocks have been losing value bigly and I haven’t been able to avoid the carnage. Here’s a screenshot showing how much my Fidelity portfolio went down on one particularly jarring day during this current pullback (1/5/2022):
Learning to Love the Investing Process
Twenty years ago, I would have locked in the above paper loss by selling. My aversion to loss back then was very intense.
But since I began investing in earnest in 2006, I have learned to subdue the get-out-of-dodge impulses of my lizard brain. And I have learned to subdue these impulses for three reasons:
Faith
Every financial guru that I’ve been acquainted with—from Warren Buffett to J.L. Collins—has stressed the view that Wall Street pullbacks are great buying opportunities. And the reason they stress this view is simple: Wall Street eventually comes back. It may take three months, it may take a year, but at some point in the future, the Dow will be higher than it was the day before the pants-soiling Wall Street pullback began.
Early in my investing career, I didn’t have experience as a teacher. All I had were these financial gurus telling me to ignore the FUD from the financial media and carry on with my dollar-cost-averaging. Fortunately, these financial gurus struck me as honest brokers of financial advice, and that leap of faith gave me the courage to start ignoring the get-out-of-dodge impulses of my lizard brain.
Mrs. Groovy
Mrs. Groovy has always had ice in her veins when it comes to investing. Paper losses just don’t bother her. When I showed her our paper loss on 1/5/2022, she just shrugged and asked me what I wanted for dinner.
Mrs. Groovy has proved to be an awesome antidote to whatever wavering faith I have had in my gaggle of financial gurus. This was especially true in 2008 and 2009. Back then, as the raging recession was eviscerating our investment portfolio, she not only refused to let me sell any shares of our stock funds but she also made me increase my contributions to my 401(k).
Experience
I have now been investing in earnest for nearly 16 years. So I now have real evidence to juxtapose against the advice of my gaggle of financial gurus and against the steely nerves of my beloved Mrs. Groovy. Here is the progress of our net worth for every year after 2014:*
| Year | Net Worth Gain or Loss |
|---|---|
| 2015 | +1.22% |
| 2016 | +15.00% |
| 2017 | +12.73% |
| 2018 | -7.93% |
| 2019 | +13.89% |
| 2020 | +22.54% |
| 2021 | +29.35% |
* I don’t have net worth data prior to 2015 because I only began tracking our net worth in 2015.
What makes the above evidence particularly compelling is our net worth progress after 2016. Mrs. Groovy and I didn’t retire until October of 2016. This means the net worth results of 2015 and 2016 were largely affected by our employment and our ability to contribute roughly 50 percent of our gross household income to our investment portfolio. If we stopped working in 2014, our net worth would have gone down in 2015, and our net worth wouldn’t have come close to going up 15 percent in 2016.
After 2016, however, we had no more W-2 income to invest. Our only means to tweak our net worth results has been rebalancing, which we have typically done twice a year. And yet despite the absence of W-2 income, and despite the need for portfolio withdrawals to cover at least half of our living expenses, our net worth has gone up four of the five years since retirement. And Wall Street was particularly kind to us in 2021. We spent way more in 2021 than we did the previous four years, and our net worth still went up more in 2021—both percentage-wise and dollar-wise— than it did in any previous year.
Final Thoughts
Okay, groovy freedomist, that’s all I got. What say you? I say investing is a process you need to teach yourself how to love. There will be days and years in which the Wall Street gods treat your investments with abject rudeness. But there will also be days and years in which the Wall Street gods treat your investments with robust kindness—and thankfully, the kind days and years are more numerous than the rude days and years. As long as you learn to ignore Wall Street rudeness, and continue to invest through pullbacks, corrections, and crashes, your net worth will likely have a very satisfying upward trajectory. Peace.
Thought you guys have been investing much longer than since 2006? What were y’all investing in pre 2006?
I guess overtime, the more and more downturns and up urns you experience, so you get used to them. But the losses still sting somewhat.
Just got to put things in perspective like you have about how much we’ve come.
I’m really focused on spending a lot more money this year to live it up. Don’t wanna lose it all in the market! 🙂
Sam
Financial Samurai recently posted…How To Avoid Financial Fraud And Protect Your Investments
Hey, Sam! So great to hear from you. Sorry for the late reply. Had a busy week and I’m just getting back into blogging mode.
Yeah, Mrs. G and I are late bloomers when it comes to investing. In the late 1990s, a friend at work encouraged me to invest in our municipality’s deferred compensation plan. It was essentially a 401(k) for government workers. Needless to say, I didn’t know what I was doing. My money was going into some kind of stock fund. And it was doing well right up until the dot com bubble burst. My $17,000 investment went down to $9,000 and sold in panic. As I said, I didn’t know what I was doing.
But thankfully, that sour experience didn’t scare me off of investing for good. In 2006, Mrs. G and I opened our first IRAs, and Mrs. G began investing in her company’s 403(b). The next year, I landed a job in the private sector and began investing in my company’s 401(k). And the rest, as they say, is history. Mrs. G and I are now wily veterans when it comes to investing.
And I hear ya about not wanting to “lose it all in the market.” Mrs. G and I are just itching for this Covid business to be over. I have my sights on a month-long trip to Japan. Hopefully, we’ll be able to do it in 2023.
Hope all is well on your end, my friend. Peace.
Your remark about selling all in the dot-com bust reminded me of how I’m kicking myself for NOT doing a massive Roth conversion just after the Pandemic Panic stock plunge. (I didn’t realize ) Now, if only Russia & the FICUS will start their wag-the-dog war, so I can do that Roth conversion…
steve poling recently posted…Dave Ramsey Heresy
Excellent point, Mr. Steve. Stock market plunges are a great opportunity for Roth conversions. That’s an arrow we should all have in our investing quiver. Bravo, my friend.
Mr G, having lived thru numerous bears during our careers and seeing the rebound builds confidence, for sure. I was actually excited during the 2020 “COVID Bear” since I’d been patiently waiting for an opportunity to deploy a bit of excess cash. I never worried at all, and got a bit more excited every time the market dropped. Funny how our perspective can change with experience.
One of my many stupid missed opportunities was the Covid crash. I thought I was all in on equities and had no good move. Stupid. I had a LOT of money in traditional IRAs that I could have converted to Roth at the time. I knew the market would come back and I am kicking myself for not moving the money to where the inevitable bounce-back wouldn’t be taxed.
My only trouble today is that it’s January and if I do a huge Roth Conversion now I can’t undo it and will have to live with my decision for the rest of the year.
Thanks for reminding me about Roth conversions. I forgot about that very useful arrow in my financial quiver.
I love it! I just wish I had some income to take advantage of bear season. All I can do now is rebalance and that isn’t nearly as satisfying. I’d rather have the same number of bond shares and more stock shares. Hope all is well on your end, my friend. Peace.
I’m a grizzled veteran of investing, much older than you groovy sprouts. But I never sold anything in a panic. I’ve lived through some times when it got real, Mr. G. But I always knew it was just play money, Monopoly money, until you need it to support you. We lost $102K that same day you hit the skids. Except neither you nor I lost anything, cause we didn’t sell. We still own the same % of hundreds of great companies who aren’t about to stop making profits. Good comforting advice Mr. G. I’m going to go to the lake and catch some bass with my grown son now, who is visiting us, and let the market do whatever it wants!
Thanks for sharing, Mr. S. It’s nice to see that there are others who have learned to stop worrying and love the investing process. Enjoy the fishing. I’ll be doing a little welding on the bison today. But both of us will be happily ignoring the slings and arrows of Wall Street. Peace, my friend.
Curious, why is JL Collins considered an investment guru? He doesn’t even have a finance background.
Thanks for sharing sharing your net worth history. Good to take things in stride.
True, he doesn’t have an investment background, but he wrote one of the best investing books I ever read–The Simple Path to Wealth. So in my pedestrian mind, that makes him an investment guru.
I’d put Mr. Collins up against just about anyone. Wisdom doesn’t have to be credentialed to be worthy.
Mr. Jake knows that. He was just messing with me a little.
I absolutely agree about overrated credentials. So many jobs can be done well with just some on the job training and without the credentials that come with college debt. Life would be so much easier for so many people if companies would stop requiring a college degree for even the most basic, entry level positions. That may be the best way for this country to tackle the student debt crisis by having people avoid the debt in the first place!
I couldn’t agree more. The bachelor’s degree, America’s preeminent credential, is a cruel joke. Why are we forcing young people to take 40 courses when 10 to 15 courses are all they need to acquire the foundational knowledge for most entry-level jobs?
Mr. Groovy recently posted…How I Learned to Stop Worrying and Love the Investing Process
I’m also one to hold tight when the market is not kind. Since I retired, I have planned withdrawals for each year and either take them in 2, 3 or 4 payments throughout the year. The frequency of payments is directly tied to what is currently going on in the market. I have delayed withdrawals when the market is actively tanking and wait until there is some upward correction. That’s the beauty of having enough ready cash to ride out these storms. Stay safe!
Very wisely played. Mrs. Groovy and I use a bond fund in a brokerage account to supplement our pension income. We withdraw a set amount each month and grab additional chunks whenever we need to cover a big expense (i.e., vacation, home improvement, dental bill, etc.). We figure there’s enough money in the bond fund to maintain this strategy for another four or five years. Thanks for stopping by, my friend. Great comment as always.
Every property owner has capital expenses. Though we can’t arrange for a furnace to go out at a market top, we can decide to do some preventive maintenance when markets are happy. My roof had problems right after the covid crash. So, instead of replacing it, i paid just enough to get it mended. conversely, last fall I replaced my aging van with a shiny black truck. I will get back to the roof and maybe redo carpeting if/when the market recovers from its current unpleasantness.
Excellent point. Another beauty of the market is that it gives you wiggle room. There is no expiration date on a stock or a mutual fund. So you can always wait to make a withdrawal until it’s more advantageous.
So I have the Vanguard app on my phone. It’ll show me how much my balance has changed since 1 Jan, and longer durations. Lately I’ve been impressed by how much the former has gone down, BUT all the other timelines are positive.
Likewise, I recall looking at my cumulative balance at the bottom of the first Covid panic. It showed a gain almost as small as my bank’s money market account. Of course, it was up 40% a few months later.
So, my paper worth is greater at every other period EXCEPT the last month. This fact will never make it into any headline in the financial media.
Headlines are made over the course of weeks. Fortunes are made over the course of years. Invest accordingly.
steve poling recently posted…Dave Ramsey Heresy
“Headlines are made over the course of weeks. Fortunes are made over the course of years.”
Brilliant! I love it, my friend.