Overcoming_the_futility_of_work_when_youre_investments_are_losing_money
00:00:00.000 | Hello everybody it's Sam from Financial Samurai. Special episode today, February 28th 2020,
00:00:07.960 | because we have just gone through one of the most violent and the fastest correction in
00:00:14.840 | the stock market in the history of the stock market. We've corrected by 10% faster than
00:00:21.120 | any time in history because we have now seen four back-to-back 3% plus down days thanks
00:00:29.880 | to coronavirus fears. So if you're wondering what I'm doing with my money, well I'm buying.
00:00:36.440 | I always buy whenever the market goes down greater than 2% because generally one standard
00:00:43.300 | deviation plus or minus one, the market goes up and down about 1% a day. It's like .8%
00:00:49.240 | something like that. So when you see a 2% down day or a 3% down day, it's generally
00:00:55.520 | a good time to take advantage. Now the problem with my strategy is that we've seen four 3%
00:01:02.120 | plus down days in a row. So my first three purchases are all money losing. But you know
00:01:10.320 | what, that's just the way it is. So long as I have some income coming in, I am going to
00:01:15.400 | be sticking to my methodology of investing more than normal every 2% plus days. So when
00:01:21.720 | we're seeing 3%, 3.5% and 4% down days, I'm definitely buying. Now I don't know when the
00:01:28.920 | selling will stop, but if you look at history, the selling inevitably always stops because
00:01:34.040 | something positive happens and then we go back to normal. And these corrections tend
00:01:41.440 | to happen almost every year. So it shouldn't be a surprise we've gone a very, very long
00:01:46.820 | way and correcting is healthy. It will be very interesting to see how central banks
00:01:52.880 | around the world coordinate their efforts to try to pump liquidity and bring confidence
00:01:58.340 | back to the market. A lot of people say, "Well, that's not going to help given this is a virus."
00:02:03.440 | But any kind of confidence from the central banks, just mentioning, "Hey, we're ready
00:02:08.960 | to pump liquidity into the system," or "We're ready to cut rates," or "Cut rates should
00:02:13.360 | help." Very famous investors such as Warren Buffett with billions of dollars in cash from
00:02:18.920 | Brookshire Hathaway saying, "I see this as a buying opportunity. I am going to be looking
00:02:23.920 | at opportunities in various industries that should help confidence." Companies that are
00:02:28.880 | cash rich like Apple with their $100+ billion saying they're going to be buying should help.
00:02:33.280 | So you just never know. Everything is yin-yang in finance, so when things go down, bargain
00:02:38.240 | hunters come out of the woodwork. I am assuming that global central banks and the Federal
00:02:45.400 | Reserve and people with cash are looking for opportunities now. You just never know, but
00:02:50.560 | I think something positive will happen. Now on the flip side, we can wake up the very
00:02:55.240 | next week and we can have clusters of people exposed to the coronavirus in countries we
00:03:03.400 | have never heard of before and we just realize, "Oh, it's just never ending." But I think
00:03:08.760 | the more we hear about the coronavirus, the more we get used to the coronavirus and the
00:03:13.920 | news and the outbreaks and so forth, and it kind of just becomes part of our daily routine.
00:03:21.900 | So I'm hopeful that things will get better by the summer. Now one topic that came to
00:03:27.220 | mind is the feeling of futility. The futility of going to work or doing your side hustles
00:03:34.120 | to make money when you're losing more in the stock market on a daily basis. And this thought
00:03:40.760 | occurred to me because I made a commitment in 2020 to try to make some more money so
00:03:46.260 | I can go back to early retirement by end of 2022 to spend more time with my kids. Specifically,
00:03:51.880 | I'm trying to raise $1.5 million more in capital or generate another $6,000 a month in investment
00:03:59.280 | income or retirement income to pay for healthcare and inevitable rising education costs, such
00:04:05.960 | as preschool. So here I am trying to do some business development on Financial Samurai,
00:04:11.200 | trying to see if there are any sponsors, new affiliates and so forth. And I'm succeeding,
00:04:16.720 | but at the same time I'm losing my shirt in my equity investments, which account for about
00:04:21.760 | 20% of my net worth and is probably going down as we speak because the markets are melting
00:04:26.640 | down. And it's a disconcerting feeling. It's a feeling of futility, like why am I bothering
00:04:33.640 | trying hard to make money when my investments are just taking me under? Now I was thinking
00:04:41.600 | perhaps some of you, or maybe many of you, now that you're listening to my voice, are
00:04:46.880 | feeling the same way. You know, why bother going to work to try to pay taxes to the government?
00:04:52.840 | That's right, it's tax season right now to add insult to injury and try to make money
00:04:58.240 | while your investments and your 401k IRA are going down the drain. So I took to Twitter.
00:05:03.840 | I took to Twitter to see if anybody else feels this way and what they're telling themselves
00:05:10.280 | and how they're dealing with it to get some inspiration and some thought. So if you're
00:05:15.120 | feeling down, maybe some of these takeaways will help. So Christine Price says, "By working,
00:05:23.640 | I bring on income that will allow me to invest in the dip." But I think that's a good way
00:05:29.320 | to think about it, right? If you have cash flow coming in and you're disciplined, that's
00:05:33.920 | great. You can take advantage of this sell-off. Another guy says, Jared at 30-some says, "I
00:05:41.440 | just keep it in perspective. I've lost a lot in the markets for the last few days, but
00:05:46.040 | overall I'm still positive. Nothing great ever happens without a little struggle. Keep
00:05:50.200 | calm and carry on." One guy named Shakiru says, "My couple dollars isn't nothing to
00:05:57.480 | what billionaires are losing." So that's some interesting perspective because the mega millionaires
00:06:03.600 | and the billionaires own most of our country's wealth and they are absolutely getting shellacked.
00:06:09.880 | So this wealth disparity that has been widening over the past 10, 20 years, actually probably
00:06:17.600 | forever is narrowing as we speak. So that's good. Elsewhere, Nick M says, "You only lose
00:06:24.880 | if you sell." That is true, kind of, although it's really painful to see those paper losses
00:06:30.400 | and red, red, red when you see the screen. Dave Menzi says, "Frame of reference, we're
00:06:37.400 | still up about 20% since the start of 2019." Well, actually, probably only up like 10%
00:06:43.760 | now. And he says, "How quickly we forget and adapt to our new wealth normal." And I think
00:06:50.520 | that's a really interesting perspective because the Dow has lost all of its gains for 2019
00:06:56.160 | already. The S&P 500 is still up, I don't know, 5%, 10% since January 1st, 2019. So
00:07:03.400 | we've come a long way since 2019 and we're just kind of going in reverse. So it's funny
00:07:09.200 | how used to the wealth we feel and how bad it feels to lose so much money. You know,
00:07:14.520 | there's a lot of studies that says it takes two times as much gains to feel one time amount
00:07:21.800 | of loss. So we just basically feel twice as bad losing money than making money, which
00:07:27.680 | is why I've talked so much about the number one rule of financial independence, which
00:07:31.560 | is to never lose money because once you've got the money, once you've got enough livable
00:07:36.360 | income streams and so forth, you don't want to go backwards. You don't want to lose it
00:07:41.000 | because you've tasted the sweet nectar of freedom and you don't want to go to the salt
00:07:44.960 | mines. Another piece of advice from Mike Zaccardi, who seems to have a CFA and a CMT, I don't
00:07:51.640 | know what a CMT is. He says, "You need to have the mindset of bucketing investment gains
00:07:56.720 | and losses and income." And I think that's really smart. So you compartmentalize your
00:08:03.920 | investment gains and losses and you attribute them to the markets and you make sure they're
00:08:10.320 | set up in a proper asset allocation way so that it matches your risk tolerance. And then
00:08:16.280 | you just go from there. You ring fence it off. And then your income is your income.
00:08:21.480 | It's dependent on your sector, your performance, your company's performance, and their overall
00:08:28.360 | markets as well. So you shouldn't let your investment performance negatively affect your
00:08:34.560 | income performance. And I think this is wise advice. Unfortunately, it's really hard to
00:08:39.320 | do because your whole net worth is made up of multiple components. And obviously you
00:08:45.500 | want to have as many cylinders firing as possible. So this goes back to the beginning of my
00:08:51.160 | question. How do you deal with, let's say, performing well in your job or your business
00:08:55.600 | but then you're losing money in the stock market, for example. And so it's hard. But
00:09:00.540 | trying to ring fence, compartmentalize these two is really, really important because you
00:09:05.000 | don't want one to negatively affect the other. They're two separate things. Another person,
00:09:11.720 | MS Stange or M Stange says, "I love my job. Today is payday, which means 401(k) contribution
00:09:18.720 | with company match." And that's great actually. That's actually a perfect time for payday.
00:09:24.640 | 28th, dump it in your 401(k) and IRA because you should have a long-term horizon. I forgot
00:09:30.960 | about this because I don't have a consistent payday since 2012. Jesse Smith Jr. says, "I'm
00:09:36.200 | telling myself to keep going and love the process as long as I can be productive, I
00:09:41.000 | can make money. I'm too young to worry." And that's great. If you're young, if you're under,
00:09:45.800 | let's say 40, 45, you should be feeling okay. Okay that there's a masker in the market and
00:09:54.360 | you should be buying. You should be buying for 10 to 20-year horizons, maybe longer.
00:09:59.840 | Professor Fireblog says, "The part-time job and consulting side hustles completely eliminate
00:10:04.320 | the need to withdraw any funds from my investment accounts. A safe withdrawal rate of 0% is
00:10:09.800 | pretty useful when the markets are in panic. It enables me to keep adding to my S&P 500
00:10:14.520 | positions with confidence. Therein lies the value." And I agree with that absolutely.
00:10:19.280 | A 0% safe withdrawal rate is the ideal withdrawal rate in retirement. So you're just living
00:10:24.800 | off the income from your investments and you never touch principles. So hopefully that
00:10:30.760 | principle goes up over time, which it probably will over a 10 to 20-year time period. And
00:10:35.160 | of course we're going to see these yearly 5, 10, maybe 15% corrections and you just
00:10:40.520 | got to roll with it. One guy by the name of Guy on a Buffalo waxes on and waxes off and
00:10:46.960 | says, "Price is temporary, shares are forever." Which kind of makes sense. Another fellow
00:10:53.080 | by Basil, "Customers' yachts faulty," says, "Man plans, God laughs." I think that is true
00:11:01.840 | I guess. A woman by the name of MPD is a mom now, says one of the biggest cliches in investing,
00:11:10.080 | timing the market is less than time in the market, which I think is true. It always comes
00:11:15.080 | back, don't freak out about short-term losses. I think that's true, but if you feel what
00:11:19.760 | you feel, you can't help what you feel, right? And then I got a whole bunch of other responses
00:11:23.960 | if you want to check out my Twitter feed @financialsamurai with no I. And the reason why there's no
00:11:30.440 | I in the handle is because there's a character limit. Ah ha. And let me tell you my number
00:11:36.400 | one way I feel better about the stock market correction is that I look at my children and
00:11:45.040 | I see how awesome it is that I can fund their 529 accounts on a 14%, 15% correction. Because
00:11:53.000 | I had been pretty hesitant about funding my daughter's 529 plan this year, super funding
00:11:57.880 | it with 75,000 because the market was at an all-time high. But now we're back to January
00:12:03.160 | 2019 levels and I'm thinking to myself, "Hmm, this sounds pretty good." So I've been contributing
00:12:09.040 | to her 529 plan and nothing is giving me greater joy than contributing to her. Not the money
00:12:16.760 | that I'm contributing to myself, into my SEP IRA, SOLO 401k, and my after-tax investment
00:12:21.400 | accounts, nothing. Nothing feels as good as being able to contribute to my children. And
00:12:26.880 | I think the secret weapon that our children have is that they just have time. So a lot
00:12:32.440 | of us might be scared or freaking out because we feel that we're losing time or we don't
00:12:37.960 | have enough time to gain back or to live the lives that we want. You know, imagine the
00:12:42.560 | person who's about to retire this year, lose 15% of their money because they were mostly
00:12:48.480 | in stocks. I mean, that's going to hurt. Let's be frank, right? But if you are a baby, if
00:12:54.360 | you are nine weeks, 10 weeks old, you're looking at this drop and you're like, "Hallelujah."
00:13:00.040 | And so you just contribute to the account because you truly do have 18, 20 years. And
00:13:05.760 | so if you elongate the time and you transfer that elongation of time to your children,
00:13:10.600 | if you're blessed to have children, or maybe it's your nieces or nephews or whatnot, I
00:13:15.360 | think that really, really helps during these times of volatility. So that's it, folks.
00:13:22.040 | I hope this episode has given you some kind of solace and some kind of hope. I'm always
00:13:28.240 | hopeful. I'm actually a perpetual optimist and it can get kind of annoying, I got to
00:13:33.200 | admit. But you need that optimism, baby, to get to financial independence and do what
00:13:37.800 | you really want with your one and only life. So let's hope for good things from those biotech
00:13:43.720 | companies and those companies that are looking for vaccines. And let's hope for good things
00:13:48.200 | from our great leaders of the world to come up with a plan to give us confidence. And
00:13:54.120 | let's hope that this virus somehow disappears like we always see in horror movies like War
00:14:01.960 | of the Worlds and World War Z and all that just suddenly at the end, "Oh, sorry, it's
00:14:06.880 | gone." And let's hope for a V-share recovery. Thanks so much, everyone. Talk to you guys