Thanks to record growth in the stock market over the past decade, you’ve watched your net worth steadily climb. With the confidence of your growing nest egg, perhaps you started considering possibilities like downshifting your life, taking a career risk to go after a new venture, or upgrading to your dream home.
And then came 2022. At this moment, the S&P 500 is 10% off its high. Large tech stocks have been especially battered, and you may have seen the value of your equity compensation tank as well.
Now you’re worried. Do you really have enough to make that leap? Is it time to put your dreams on the shelf?
I’ve been there. I left my corporate job at the end of 2019 with lots of optimism about creating my “best life” only to step into the sharpest market crash in history and a global pandemic that turned the world on its end.
Of course, it was unpleasant to watch our accounts drop so significantly – all the more so because without a salary, we needed those investments to live on. But surprisingly, I felt quite zen.
It helps to put the market’s recent volatility in long-term perspective. Declines happen. So do recoveries.
This CNBC article summarizes the stats: Since modern times, the US stock market has experienced a correction (decline of 10%-20%) about once every 2.5 years. Average time of recovery? Four months. As of this writing, the market just briefly touched correction status.
Bear markets (decline of 20%-40%) have occurred about once every 8.5 years. Average time of recovery? 14 months.
Crashes (declines of 40%+) have occurred every 25 years. Average time of recovery? Almost 5 years.
What’s happening now can feel painful. But it’s important to remember that corrections are common, bear markets and crashes are far less so, and the vast majority of the time, markets are up.
I like to break down each household’s finances into three buckets. The “safety bucket” is the money needed to provide for your essentials and emergency cushion. The “important bucket” is for funding the financial goals that you care about most and would deeply regret not reaching, such as a secure retirement and a primary home. The “aspirational bucket” is for funding stretch goals, like early retirement or a vacation home.
I find that clients often come to me with either too much sitting in cash or too much invested in concentrated stock. Without a framework, it’s easy to fall into the grips of fear or FOMO depending on which way the market goes. Thinking about money in terms of these buckets anchors your investment strategy to the things that you care about – and that can help you stay confident regardless of what the market does.
Source: Ashvin Chhabra, The Aspirational Investor
Diversification may not always feel good – but it’s during bumpy times like this that it really yields its benefits. If you’ve been investing in a handful of index funds or a target retirement date fund, there’s a good chance you could benefit from further diversification into a greater variety of asset classes.
Now – This isn’t to say that you can’t swing for the fences with some of your investments – many of our clients do hold concentrated positions, and we help them figure out a plan for how to manage them. But for the money that is meant to fund your most important goals – we believe a diversified portfolio is the best way to maximize your chances of reaching those goals.
When clients start working with me, they always want to know: Will I have enough? Most people can name exactly what their salary is, but they struggle to tell me how much they spend with any degree of accuracy.
Here’s the thing – for most people, the biggest obstacle standing in the way of financial independence is not poor investment performance. It’s lifestyle creep.
Using the 4% rule, for every $100 more that you spend each month, you must add another $30K to your nest egg to be able to support that spend. You can see how this quickly adds up. Whether you have “enough” is entirely dependent on what “enough” means to you.
So if the market is stressing you out and you feel like you have to take action – perhaps the best thing you can for your financial future is to start getting intentional with how you’re spending your money.
I got into this work to help people develop the financial confidence to take risks and go after their dreams. When one of my clients pulled the trigger and left her job to travel the world and figure out her second mountain career, I felt proud to have supported her in the process.
But it doesn’t have to be all or nothing. I’ve watched a friend go after her dreams of climbing the world’s highest mountains while holding a management position at a Fortune 500 tech company. I myself used an extended sabbatical while staying employed to pursue a passion project in documentary film.
Your move doesn’t have to be so dramatic. It can be a small experiment like taking sailing lessons, volunteering as a coach, or spending a few weeks in that town you’ve dreamed of retiring to.
When doing life planning with clients, one of the first questions I ask is: “What would you do differently in your life if you were financially independent?” If you have some vision that answers this question, then you have a direction to start moving towards regardless of what the stock market is doing.
Stuff happens. We plan the best that we can, and then we have faith that the rest is figure-outable. I’ve written previously about what I’ve learned since my own great resignation – one of my biggest learnings is that no amount of money can insulate you from uncertainty, so just embrace it.
Markets inevitably go down from time to time. Life throws curveballs. That’s why financial plans aren’t one and done – they’re meant to evolve with your life and circumstances. And when things don’t go according to plan (as will surely happen), trust that you’ll have the strength and resilience to adjust and figure out a new path forward.
We specialize in life-centered financial planning for Women in Tech who want to forge their own path in work and life. Schedule a free money strategy session with me here.