#46. How We Are Preparing For A Market Downturn
In an earlier post, I explained how there will be another recession at some point. And in that same post, I teased what our plan would be if one occurred.
Stock market downturns are to be expected. However, as long as history repeats itself, the stock market will always recover. If the time comes when no recovery occurs, there will be far bigger problems than how many pieces of green government paper you have.
If you want to always be prepared for a market downturn, there are two major things you need to be worried about. They are:
Make sure you are set up to never have to withdraw money from retirement accounts
Always be focused on buying assets instead of liabilities
If you can get these two things right, you will be fine.
In other words, you should never have to prepare for a market downturn because you should already have a plan built into your investment strategy to handle any type of market.
To help make sure we are never forced to pull money from our retirement accounts early, here are three things we do:
We make conscious efforts to spend less than we make
We invest 25% of our income monthly on assets (we like low-cost index funds)
We keep an emergency fund that covers 6 months of expenses
There is no need to overcomplicate anything or do something drastically different because of fear of a recession, bear market, or slight market downturn. If you get the basics right, you will be able to weather any storm.
If you have the urge to pull money out of the market in bad times or stop putting money in due to market uncertainty, remember this quote from Warren Buffett:
Be fearful when others are greedy and greedy when others are fearful
When Warren Buffett speaks about money, everyone should listen. What this simple quote means is that you should be ready to buy more assets (index funds) when the market goes down and should be hesitant to do so when it rises. This is counterintuitive for many, but it should be how you look at the market.
Consistently investing monthly is the happy medium that we choose. So, no matter what the market does, we are investing our dollars monthly.
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