“Any way the wind blows doesn’t really matter to me” – Freddie Mercury
I’ve been writing about investing a lot this year. I don’t usually focus so much on one area of personal finance. The year started with quite a run and now the markets are fluctuating a lot as news of the COVID-19 starts to directly impact the world’s economy.
I was talking with a friend last week and she said something that shocked me. We talk about investing a lot. We talk so much that we probably don’t need to talk about it because we know what the other person’s philosophy is. What I found shocking was something that I knew about her, but I had forgotten.
It was (paraphrased):
I set up my asset allocation so that I don’t care what the markets do.
This may be an easy thing to say. It might be tougher to follow. There are also extreme unlikely cases (for example: Dow 1,000) that she would care about. I’ll get to those in a minute, but first…
… what a goal!
I had never thought about not caring about the markets, because I do care about the markets. We’ve watched our net worth quadruple over the last decade and are arguably financially independent (or FIRE as the cool kids say nowadays).
I couldn’t imagine not caring about the markets until I remembered the time I didn’t. That was the crash of September 2008. My wife and I were on a trip to Thailand and Australia. I was honestly more concerned about the state of Tom Brady’s knee than anything financial.
In trying to analyze why that was, I think it was a few factors:
1. I never get to travel the world, so I wasn’t going to mess up this chance.
2. I couldn’t do anything about it anyway.
3. Tom Brady’s knee (worth mentioning again)
4. We were 32 years old. Old enough to have some nice savings, but young enough to accumulate shares at low prices before we’d need to use the money for retirement.
At 44 years old, my outlook has changed. We have more money in the market now. We have less time in our career.
My friend is older than me. Her investing strategies are more advanced than mine. I used to be a 100% stock person and now I’m a 88%/12% bond person. She’s probably closer to 50% stocks/40% bonds/10% treasuries-cash-gold. (This is a little over-simplified as we both have some REITs and other investments like that.)
She has written an investment policy statement (IPS) that balances her allocations whenever the market goes up or down. For example, with stocks dropping about 12-15% last week, it triggered and event to sell some bonds or treasuries and buy the cheaper stocks. I did the same myself.
It actually felt good to sell bonds and buy stocks at a lower price. It certainly feels than when I was in 100% stocks and having nothing I can do to buy on the dip.
Do I Care What the Markets Do?
That’s the key question you want to ask yourself. It’s okay to care. It’s okay not to care. This is a judgment-free zone. Personally, I like the idea of having diversification to limit losses and give me options if the market moves down. I’ll always root for it to go up, but I’m finding it more important to feel okay when it goes down.
Of course the famous Mike Tyson quote applies here:
Everyone has a plan until they get punched in the mouth
With the market down 12-15%, it has felt a little more like a love tap than a punch to me. I don’t know how I’d feel if the market goes down 40% like in 2008. I know I won’t sell. I probably will not be very fun to be around.
I think that answers the question for myself. I do care what the markets do, but I have much more flexibility so I don’t care as much. I have some work to do before I feel like I can get my friend’s philosophical place.
Should you have a goal to not care what the markets do? Let me know in the comments.