The Market is Down! Hooray!

What’s the first thing you should do when the market takes a dive? Deep breaths and keep on keepin’ on! As we have discussed in the past, the market can be extremely volatile. It goes up, it goes down, but over any prolonged period it winds up higher than it originally was.

I once heard someone say that it’s like playing with a yo-yo while walking up a mountain. Even when the yo-yo is at its lowest point of the drop with a sick walk the dog trick you mastered, it’s still higher than it was 5 miles back. Presumably, after the next 5 miles your yo-yo will not be below the highest point it can be at right now; even with the perfect around the world trick. 🤪

So, how should this recent dip in the market impact your financial plan? It shouldn’t. Still, each type of market we are in will present new opportunities as well as new traps to fall in. The intent of this post is to assist in decision making throughout this shift in tides as we navigate towards financial independence!

Disclaimer: I am not a CFA, CPA, CFP, or a certified financial professional of any kind! Please seek consultation before making any major money moves!

Rule number one when sailing through turbulent waters is to chill out! This tends to be true for all life decisions, not just the financial ones. By freaking out and panic selling right now, you are hurting your finances for the long term. When it comes to long term investing, the market has always bounced back!

Let’s take a look at what I’m talking about with the S&P 500. The following screen shots are from the Yahoo Finance website.

Without even getting nerdy on the numbers, just look at that market growth from 1985! 😶 Let’s zoom in and look at just the last 5 years.

So, despite all the recent freak out about this dip in the market, we are still up overall from last year! On top of that, there was a bit of a market correction back in 2022. It was a minor one, you may have completely forgot about it. As of right now, we haven’t even seen those losses yet!

If you decide to sell now, it means that you are going to try to time the market when jumping back in. The vast majority of professionals fail at this when attempted, how are you and I going to know the right time to buy is? We aren’t. Chances are much more likely we’ll fumble at buying at the perfect time and miss out on all the gains we could have had from staying in!

For anyone who is in panic mode because of this current market dip, I have one question: How strong is your emergency fund? Traditional advice will suggest that everyone should have 3-6 months of expenses saved up. I generally recommend for the Savvy Solo to shoot for 6-9 months of fixed costs in their emergency fund.

This emergency fund is an excellent wealth builder since it protects you from the big, unexpected events that will inevitably happen. Sure, it comes in handy when your car breaks down, or the AC goes out. What if this current market dip turns into a recession, and you end up losing your job? This creeping thought is far less scary if you know for certain you’ll have 6-9 months to weather the storm. Not only that, but it also gives you the freedom to try something new out during this time, maybe make even more money in the process!

In the past, I’ve heard financial advisors suggest that retirees keep 2-3 years of cash handy; in HYSA or other easily accessible account. I must admit, I like this idea quite a bit. I’m not expecting retirees to keep up with constant stock fluctuation, but I believe most will be somewhat aware of the current state of the market. For those that are newly retired, living off this cash reserve during a market downturn will enhance future earnings.

Again, it shouldn’t be a month-to-month fluctuating plan. Instead, simply decide to take less distributions this quarter (or year), and fill the gap in income with your cash. Then, when the market bounces back take out a little more to fill up that 2-3 year cash cushion you have built up. Even through the toughest recessions, the market has generally worked its way back in a 1-2 year window.

This one might sound counterintuitive; but hear me out! Stocks are on sale right now!

🥳

Now, obviously I’m not a fan of single stock investing. There are going to be people saying to buy certain stocks now that they are super low, because they are going to come back. I’ve heard this more recently regarding the Tesla stock. Is Tesla down right now because of the market, or because of the polarizing feelings around Elon Musk? I don’t know. Because of this, is the TSLA stock going to die or come back stronger than ever? I also don’t know.

What I do know is that the US stock market as a whole has always bounced back from even the worst market downturns given the proper amount of time. By utilizing the VTSAX and Chill strategy, you can rest assured that your investment will (almost definitely) come back stronger than ever! The same could be said for many diversified investment strategies that doesn’t include speculation on any particular single stock.

So why invest more right now? Let’s take a look at the recent trends of VTSAX as an example (again using Yahoo Finance for the visual):

So, the highest peak in the last 6 months was on 2/19/25 at 147.54. We have a pretty good feeling that it will come back to this point (and beyond). If we had gone in with $100 while it was on the way down on 3/4/25 at 138.29; this investment will turn into $106.69 assuming it reaches that peak again. If we do the same thing today at 133.14, our $100 turns into $110.77. If we had done it at its lowest point on 3/13/25 at 131.95, our $100 turns into 111.84! Are three examples enough? I think so. 🤪

As the market goes down, our buying power goes up! Obviously, we know we can’t time the market to know the exact right time to lump sum purchase into the market, instead continue to dollar cost average as you have been but try to get a little more in there each month! Get it while the gettin’ is good! 🤤

***Side note: Don’t put more into investments at the expense of your emergency savings, this can come back to bite you. Try to find other expenses to cut if you are looking to increase investments.

Maybe all this talk about the VTSAX and Chill strat has peaked your interest, and feel like it’s time to change up your investment allocation. 😁 There’s no better time to make shifts like this than when the market is down.

Depending on where your investments lie, you may be looking at paying fees or commissions to sell and buy stocks or funds. Hopefully you are with a low-cost brokerage that avoids these, but now is the time to make the move if not. Since the dollar amount invested is likely lower than it was a few months ago, it will lower the burden of these costs to make these money moves now.

For those that suddenly realize their allocation of investments is too conservative for their retirement horizon (generally the younger crowd), selling bonds and buying stocks now will usually result in a higher net worth down the road. Likewise, for those with riskier portfolios and retirement within sight (generally the more seasoned Savvy Solos), it might make sense to transfer some assets into some of the more risk-averse investments.

Also, for those eager to get out of single stocks or particular fund in their taxable brokerage account, tax loss harvesting is your friend right now. On the broad scope, it allows you to write off losses to mitigate your tax burden at the end of the year. Beware of the “wash sale rule” on this and wait a minimum of 31 days before buying back into the same investment. I encourage a lot of people to make certain money moves on their own, but on this one you’ll absolutely want to consult a CPA or financial professional before implementing this strategy.

In the same way that rebalancing your portfolio is better when the market is down, making Roth conversions will abide by the same basic idea. Since the money in your tax deferred retirement vehicle is likely to be a little lower now than in the future, you’ll mitigate the tax burden of moving this money over to Roth today!

We’ll get into the different ways to think about Roth conversions and strategies in the future, but for now The Mad Fientist has written numerous pieces on Roth conversions that are fun to read and easy to understand! I highly recommend his work to anyone looking to retire early.

Again, despite reading up on all the nuances and benefits of a Roth conversion, you’ll absolutely want to consult a CPA or financial professional before implementing this strategy. Do it right, and you’ll have the option to retire earlier with even more tax-free money! Do it wrong, and it could cost you more than you think! 😬

Bull market good, bear market bad, right? Not necessarily.

Being in a down market presents different opportunities for all of us. Most importantly we have more buying power to double down on a well-diversified investment portfolio! Even for retired Savvy Solos with no current income stream, each change of tide will present new possibilities for a better future!

It’s also worth stating that doing nothing right now is actually a good thing! While everyone around you may be making big money moves left and right, you can breathe easy knowing that your investments will come back (most likely) stronger than ever! There’s no sense in worrying about things you can’t control.

Keep pushing, keep working, keep that positivity rolling, but most of all…

Stay classy Solos! ✌️