Okay FIRE Noob, This Is Your First Big Quiz

If you are new to the financial independence or FIRE movement in the past 10 years you are now taking your first quiz.  This isn’t a test really, it’s a quiz. 

Sure, the markets dropped about 15% percent last week alone which has been one of the fastest in history.  But I don’t really consider this a full test yet. 

They roared back up 5% yesterday (Monday the 2nd) but it’s clear we’re in for a rodeo ride.

The decline and volatility have nothing to do with the actual numbers or financial health behind public companies, they’re about fear of a pandemic. 

I’m not trying to diminish the risk or to say that the fear is not real.  And whether or not COVID-19 will become a real pandemic is far above my pay grade.  The opinions of the experts are out there and I highly recommend you read them.  It might go real far to quell your own fear, if you have any.

But the emotions and actions related to preparing for a potential pandemic are very disruptive, as we see in the markets.  When it comes to the market and its relation to public fear, it seems there’s only two settings: complacency and doomsday.

 

Too Much Information

The World Health Organization has called the epidemic of misinformation about COVID-19 that’s spreading rapidly through social media platforms and other outlets an “infodemic”.  Never before have we been able to spread fear and bad information so quickly to so many.

I’m not going to lie, this is not fun to watch.  I’m also not going to be one of those smug folks who’s posting gifs or blogging about how it’s awesome because everything is on sale.  I did, however, make my 2020 Roth IRA contribution of $6,000 yesterday, and it’s going into the market. 

But I get it, it really sucks to see your investments plummet.  The fear and anxiety are real for many.  I remember it vividly from the 2000 tech bubble crash and from the 2008 to 2009 crash.  So, here’s some perspective. 

From August of 2000 to September of 2002, the S&P 500 declined 46.2%.  It didn’t get back to the level it was at in August 2000 until 6 years and 9 months later.

We just lost about 15% in a week.  Imagine it going down another 31.2% slowly over the next 2.5 years.  That would make it late summer 2022, and you’d be 46.2% down from the January 2020 highs.

Scared yet?  No?  It gets worse… 

Now imagine it’s 6 years from now, March 2026.  We still don’t have flying cars and coffee is still bad for you and good for you at the same time according to the latest “science”.  You grab your virtual reality glasses and command them to show your portfolio.  And even though things in the market have been going up, they’re still not quite back to the level they were in January 2020. 

But in December 2026 they finally make it back – woo-hoo! 

Then, a mere 5 months later in May 2027 a bigger crash happens.  And this time it doesn’t get back to those January 2020 levels until 2032, about 6 more years. 

Am I being ridiculous and alarmist?  No, that’s what happened to me and anyone who was invested in August 2000.  

Twelve and a half years later, in February 2013, the S&P 500 finally – for a second time – reached the level it was at in August 2000.

That’s what you have to be prepared for.  That’s the test.

I’m in no way saying that’s what’s going to happen.  But that did happen.  To me, and everyone else who was in the market then.  It kinda sucked. 

So if you’re freaking out and considering selling after one week of a 15% decline you might want to consider whether the market is right for you.  Because it’s entirely plausible that the S&P 500 might not get back to the level we just saw until the year 2032. 

I just showed that it happened before, in this young century.

 

Breathe

So, young FIRE noob, how are you doing?  I certainly hope you’ve practiced what you preach and have not sold your investments in panic.  Just breathe. 

If you believe, as you should, that your money will eventually come back, you should think of your decline in net worth as a loan.

I update my net worth on the last day of every month, and in February I was down 4.8%.  That’s not bad at all.  Yes with my substantial net worth it’s a shit-ton of money to be frank, but as I’ve showed I’ve been through way worse.

Hold the course.  Trust me.  You are young.  If you are reading this and you are not young, then panic!

Haha, kidding.  But if that’s the situation I would assume that you’re already smart and are not too heavily weighted in equities anyway.

Again, this is merely a quiz.  When the actual test comes – and it will come –  it’s going to be way harder, and it’s going to drag out for years.  Practice now, be ready.

And remember that the great companies that comprise our market are the same companies they were a month ago.  This correction is not because of their earnings numbers or because they stopped innovating, it’s because of the fear of a disease. 

Your turn – how are you doing financial warriors?  Are you passing the quiz?  Chime in below!