Back in 2008, the Stock Market crashed – and it went down hard. Since nearly all of my clients are friends, after a decade or more of working together and spend hours discussing current affairs, possibilities, and probabilities, I get a broad spectrum of ways of thinking about problems and the actions they precipitate. I want to relay to you my observations. I am not a stockbroker, picker, or investment advisor – just an observer – so this is just food for your thought process.
Prior to the crash, most people had money in an IRA or company pension plan. Deciding what to do with that money after the crash happened was a key decision that everyone with a pension plan had to make. Disenchantment was certainly at the highest levels. Prior to the crash, most people felt fairly well-off and relatively secure in their retirement. The crash took all of that away. People went from a sense of well-being to a sense of utter despair overnight. Add to that the jobs losses. Every day seemed to bring phone calls from people who lost their job and wanted to talk through their next steps.
Now I’m on the West Coast, and a night owl, I get the openings from countries from China through Europe before I go to bed so I knew that I’d be waking up to a blood bath. Here’s what I want you to know. Back in 2008, after the crash, a great many people pulled all their money out of the Stock Market from their pension plans and even other investments. Others let it ride.
Today, everyone who let it ride is not just whole – but far better off because the market has done well this past decade. The people who pulled their funds out are struggling and many express concern about their retirement prospects. As I write this the DOW sits at 25659.59. It’s down from 29000 and it will probably continue to fall as the economic ramifications of the Coronavirus ripple across the entire world. Pulling the money out might look like the right thing to do – and maybe this time it will be – but that hasn’t been the right thing to do in the past.
These are my observations: Markets go up and markets go down. If you’re an active investor managing your own portfolio, you might try to time the market. Most who try to lose. If you take the money out, you’re locked in at whatever point you take it out. If you let it ride, the Market will go back up and so will the value of your funds. If you take it out, you’ll also be hit with a huge tax impact to boot so not only does the value of your investment fall, and get locked in at that lower amount, you lose a huge chunk of what is left to taxes. Then you’ll have to figure out what to do with it. Savings accounts pay nothing – far less than the rate of inflation – so you’ll actually lose money every day you have it in there. Government Bonds pay nothing. In several European countries and Japan, Bond rates are actually negative – you have to pay them to lend them your money. Fun, huh?
All of this is about learning how to farm money. The difference between rich people and poor people is how good you are at farming money. Nothing – nothing – pays better than being a good money farmer. When I grew up, the question was whether to plant the corn in wet soil, getting it in early so it would have longer to grow and chancing that the seeds would rot or planting later and having a shorter growing season. The farmers who made the right decision had good crops, those who made the wrong decisions did not. Somehow my grandfather always knew the right choice – my father, not so much, so learning to farm anything is a tricky process.
