The Stock Market Is Going To Crash. Are You Ready?
I have some friends that were in a fraternity in college. During their initiation period, they were locked into the shared frat shower and forced to listen to “Who Let the Dogs Out” by the Baha Men on repeat for 48 hours straight. (The following year’s fraternity “pledges” got “Toxic” by Britney Spears.) I can’t make this shit up, ladies. Men are fucking awful. Can you imagine the paranoia that 48 hours of Baha Men would unleash? The feelings of helplessness? Not being able to think straight? The pure panic that each new minute brings?
The questioning every single life decision you’ve ever made to get you to the point you’re at now??
Well, bad news: A 48-hour long Baha Men extravaganza is precisely what the next stock market crash is going to feel like. Only longer. And more personal. And we can’t do anything to stop it from happening.
A bear market, which is the stock market dipping 20% or more, happens about once every decade or so. There’s no telling when the next bear market will be; our last one was in 2008. (FYI, 2008 was particularly upsetting. The stock market was down about 50% across the board. Yowzers! For about a year, it was the investor’s equivalent of “All About That Bass” by Meghan Trainer on loop.*) Anyway, the next crash could kick off tomorrow. It could be another ten years. No one knows when it will happen, we only know that it will.
*Unless you saw it as the unbelievable buying opportunity that it was. More on this later.
Maybe you just got started saving and investing, or maybe you’re a seasoned vet with $100K in the bank. No matter the amount, if you’re a young person you’ve probably got at least a part off that money invested in the stock market. And to be clear, if you’re invested in stock funds, you’re invested in the stock market. (Don’t know how you’re invested? That’s your job for the day! Go figure it out. And read this blog post on how to get started and read this blog post on how investing can and should be easy!)
For a minute, let’s pretend it’s the beginning of 2008. You’re settling down on your couch, in your As Seen On TV snuggie, to watch the Sex and the City/Juno/Kung Fu Panda DVD that Netflix just mailed you, and stocks start to lose value—and fast. By the beginning of 2009, the crash has cleaved stock values IN HALF. If you had $10,000 in your 401(k), now you’ve got $5,000.* Wizard woman with $100,000 in the bank? You’re now looking into an account that is reflecting a sad, reduced $50,000 back to you. It’s so lame. I once worked with a woman (breadwinner!!) who told me 2008 felt just like when her husband divorced her and got half her money.
Handy table of how terrible stock market dips can feel:
*I’m not necessarily recommending you keep your entire retirement savings in stocks, although in the spirit of honesty, I mostly do—using stock index funds. In reading this post and understanding the risk of volatility—and balancing that against the risk of being too conservative too soon—only you can make a decision about how much of your long-term savings you’re comfortable allocating to stocks.
In this moment, what would you do?
If you said, “scream, sell my stocks, take the cash, move to rural Dakota, build a mud hut and arm myself with a musket, live off only squirrel meat and edible roots,” I can’t exactly blame you. But this, in fact, a bad plan. Don’t do this. I’d miss you too much.
If you said, “I would do nothing,” DING DING DING!! Someone get this girl a Cinnabon and a vodka.
The worst thing that you could ever do during a stock market downturn is actively sell out of your stocks. ‘Cause the stock market, like the economy, moves in cycles. Not every year is an “up” year. It can’t be! That’s just not the way the world works, so no use pretending like it is. The good news? It has never not come back up! (sry for the double neg!!)
Luckily, my lady breadwinner client that I mentioned earlier stayed totally calm and cool throughout ’08, ’09, and for every year thereafter. She had about $5 million in the stock market (I know, cray) in 2008. But what would have happened if she had sold out when shit got real tough and scary, like so many of the clients I worked with?
If she had succumbed to her fears, she would have locked in over $2.5 million in losses. At this point, she may have held her cash, waiting on the sidelines for “things to get better.” But guess what? While you’re waiting, the stock market begins to creep back up, and you miss all the good stuff!! Hell, people still don’t “feel better” after 2008—and for many reasons, justified—but during that time, from the bottom to the top, the stock market is up 280%. How you feel about the economy is a very bad indicator for the stock market. (Actually, your feelings are considered a “contrarian” indicator. Meaning: If you think everything sucks, it’s probably a good time to invest.)
So, how much is our gurl worth now? (*hypothetically*)
By just riding that wave like the chill-ass babe she is, she now has over $8 million in the bank.
What happens to your brain during a stock market crash
It’s very easy to brush off what I’m saying. You’re cool! You’re smart! You ain’t no butthead! (Women are notoriously better at staying the course than men.) But sometimes, an event like a stock market crash gets the better of even the level-headed. For one, a stock market crash is completely out of our control, which let’s be honest: No one likes feeling like things are out of our control.
When you see your money “disappearing,” it is very possible you’ll snap into full SOS mode, whether you want to or not. You see, we humans are equipped with these beautiful brains that were designed to keep us alive as animals in the wild for many thousands of years, but these same brains are sometimes mismatched with the task of navigating the manufactured chaos of our wacky, modern world.
When faced with threat and danger, humans are hard-wired and chemically-driven to do something about it. To take action! To battle to the death whomever wishes ill upon our kin!!! And thank fucking god, amiright? If you don’t have a rock-solid plan to protect yo ass out there in the wild, you’re mincemeat pie. But here’s the problemo: “Doing something” with stocks means selling them, and at a huge loss. And while you might understand that selling out is a terrible idea in theory, in that moment your desire to “fight or flight” will be at war with your ability to rationalize. That’s why we need to talk about it NOW. BEFORE the next downturn.
You might STILL be thinking, “No way, Dumpster D! I would never do something so stupid!!” But it’s tricky because even if YOU keep YOUR cool, you’ll have family members and friends who won’t be keeping their cool. The news will be 24/7 panic. And this will make you question your cool. (No but seriously, humans are also total herd animals. If everyone else is freaking out, so will you.)
Here’s what you need to do during a crash
No, but seriously, do nothing different. Keep adding money in, as you (hopefully) are now. If you feel secure in your job and have enough cash for emergencies, try to actually increase the amount you put into the stock market. Buy that shiznit on sale! I don’t advocate trying to time the stock market (because basically no one in the history of time has done it successfully), but that doesn’t mean we should ignore the oldest and wisest of investing adages from O.G. investor, Warren Buffet: “Be fearful when others are greedy, and greedy when others are fearful.” Seems simple enough, but this is HARD for people to practice. Because as I mentioned, that means standing in opposition to popular opinion whilst your every fiber is screaming “Mambo No. 5” on repeat.
Allow me to quickly clear something up: The above might sound slightly different from my recent advice about the next economic downturn. TBH, I wrote this post as a follow-up to We Need to Get Serious About the Next Economic Downturn, because some peeps read it and thought I’m recommending you hole up and stop investing. Nope! Keep investing consistently. When we talk about the economy and the stock market, we are technically dealing with two different beasts, though these beasts totally hold hands and boink on the reg. With the economy, we are talking about your job. With the stock market, we are talking about your investments.
No one in the world knows when the next big crash will be. It could be tomorrow, it could be in ten years. But whenever it does happen, here’s a list of reminders you can read over and over and over when you get the urge to start looking for a plot of land for your mud hut.
1. Repeat after me: “I don’t need the money right now.” Repeat it again. Volatility is the short-term price you pay for having a chance at higher returns over time. If you do need this money in the next five years, it should not be in the stock market. You’re in it for the long haul, sister, and the stock market takes a long-ass time to work its magic. Like, twenty years minimum but forty or fifty years is better.
2. Stock market volatility is not only normal, but it is—dare I say—healthy. It reveals and shakes out errors and inefficiencies. Ups and downs are a part of stock investing and if you can’t accept this deep into your heart, you really shouldn’t invest in the stock market.
3. This is important: When the stock market dips, it is because investors are selling out of their stocks. “We” literally cause it to happen. Supply and demand, folks! Ol’ S&D set stock prices just like they set prices for crunchy peanut butter and Teslas. Mass hysteria and panicked selling cause big dips. And people sell stocks for a number of reasons, not all of them rational. Of course not! Humans aren’t always rational. Mood swings are a natural part of being human; think of volatility as a giant reflection of that.
4. You’re invested in companies. When you own stocks, you own a percentage stake in that company. And it is likely that little to nothing about that company has changed during a stock market crash (unless it was a piece of shit company to begin with). There’s nothing actually broken about these companies that you own, and you still own the same %. You think Coca-Cola is actually going to sell less black tar juice or that Target is going to sell less mint polka-dotted home decor ten, twenty, or thirty years from now? Hell nah. You know those bastards are gonna continue to make more money over time, for better or worse. The stock market will reflect this.
5. If you’re hearing people say that this stock market crash “is different,” or “more severe” or that the “system is more fucked up” or that the “system is broken” or my personal favorite, that “stocks are going to zero,” IGNORE THESE DINGBATS. These are the same exact things that are said during EVERY stock market selloff. Every. Single. Time. People love to be doomsayers, but doomsayers have been wrong 100% of the time so far. (Okay I admit I’m kind of a doomsayer but if the entire system collapses, fiat currency/cash won’t be saved either. And gold, a weak and pathetic metal with no practical value, will be completely useless during the zombie apocalypse.)
6. Remember that the news is not your friend. The function of the news is not to keep you well-informed and calm. News media feeds into the panic because if you’re panicked, you’ll consume more news. The news’ primary function is to sell you to their advertisers. And doom sells. Doom is the Tickle Me Elmo or the iPhone of the news industry; people go nuts for it, they line up out the door for that shit. #SMH.
7. The stock market always comes back up! People can’t be cranky forever, and this is coming from the crankiest. When the world doesn’t fall apart as expected, people will start to be interested in the screamin’ deals presented by the stock market’s freshly lower values. They’ll buy in with all the cash they’ve been hoarding, and this causes the stock market will move higher. Happens every time.
Okay, babe! You’re ready for it now. Do as you always do; remain cool and stand your ground. See opportunity where others see disaster. You got this!