I read at least one article a week about impending recessions during my daily morning news binges. At this point, I don’t actually know why I bother to read them.
Guess what? There will be another recession in the future.
I am willing to bet my life on it. It’s a 100% guarantee. Hell, there may be one so bad that it might wipe out half your retirement savings!
Holy Jesus, that sounds like a catastrophe! How can you say that half my retirement savings mightdisappear, and say it’s not a big deal!
Well, because if you lost half your retirement savings it means that the vast majority of your investments were in stocks. If the vast majority of your investments are in stocks, it should mean that you are nowhere close to retirement. If you are nowhere close to retirement, then no matter how much you lose you are practically guaranteed to earn it all back over time.
This is the fundamental reason why retirement advisors suggest that you move more of your savings towards bonds as you age. It’s a verifiable fact that the markets will move higher given enough time. If you’re going to retire in the next five years, that time may not be on that side so you need to use bonds as a hedge. But if you have more than a decade until retirement, there’s very little to be worried about. Historically, there’s nothing to be worried about.
Actually, I can’t wait for the next recession. One of the most profitable time periods of my life were the five years after the Great Recession of 2008. For the first five years following that recession, the annual returns were as follows:
- 2009 – 25.94%
- 2010 – 14.82%
- 2011 – 2.10%
- 2012 – 15.89%
- 2013 – 32.15%
Even if you did absolutely nothing, you made out pretty well as long as you didn’t move your assets out of stocks. If you continued to invest throughout this period, well then you made an absolute killing.
I certainly don’t think I’m some sort of stock guru. In any case, the general consensus among actual stock gurus is that it is impossible to time the market. So logically, if there is a stock market crash I will lose a ton of money. So why am I excited?
Because I’ll pour every penny I can spare into stocks and ride the wave back up.
As Warren Buffet once said:
“Be fearful when others are greedy and greedy when others are fearful”
So don’t be afraid of a recession. The markets are cyclical, and throughout your lifetime you will see it go up and down. Instead of panicking and losing sleep over it, accept the fact that it is a completely normal occurrence and a potentially lucrative opportunity.