Stocks are falling. Even bonds are down. Bitcoin is plunging like a bladeless helicopter. The most popular stocks of the early-pandemic era lead the spiral down. From January 1 to May 11, 2022, Facebook (Meta) face-planted 45 percent. Netflix tanked almost 77 percent. Apple, Google and Microsoft dumped about 18 percent, 21 percent and 22 percent respectively. Even Tesla was unplugged. Over the first 4 months and 11 days of 2022, it slumped 32.5 percent.
The broader market indexes look better. But they’re just the best-looking corpses in the morgue.
January 1 – May 11, 2022
S&P 500 Index
Developed Market International Index
Emerging Market Index
US Broad Bond Market Index
Investors are globally getting soaked. Stocks, bonds and crypto could also fall a lot further. If you’re wondering where to seek refuge for your assets, consider this story of an Indian village.
Every year, the monsoons come. They soak the streets. They flood the crops. They sometimes damage homes. Now imagine someone saying, “I won’t put up with this!” He leaves his village to seek drier ground. Most of the time, he can’t find it. But if he finds a cave in the mountains, he might stay dry.
There’s only one problem. He can’t predict when the rains will stop and the sun shines again. Meanwhile, most of his former neighbors don’t even try. They collect rainwater for the future. When the climate turns hot and dry (as it always eventually does) they will have water to drink and water for their crops. And because they didn’t run for mountain caves, they’re close to their fields. When the soil is ready, their newly planted crops flourish.
It’s different for the man in the cave. Several times, he thinks the rains have stopped and he begins the journey back to the village. But the weather mocks this man. Whenever he starts to leave, the rains pore down.
When the monsoon ends, the man dithers. He’s too afraid to be mocked by the weather again. After several sunny weeks, he makes the journey back. But because he was gone from the village, he didn’t collect enough water for the summer ahead. Nor did he have enough time to plant new crops.
That’s because he ran from the rain instead of embracing it.
Plenty of investors do much the same thing. When stocks fall, they run. They sell or cease to buy. They stuff money into bonds, gold, savings accounts or mattresses. Meanwhile, smart investors embrace these drops. Like villagers collecting rainwater, they keep buying every month. And when stocks recover, their planted seeds grow.
It’s easy to think we can sell before a drop and buy again before a rise. But like the man in the cave, the markets mock us.
When the Indian monsoon begins, most people don’t run. They dance. They celebrate.
Investors who are more than five years from retirement should do much the same thing. Young investors, especially, should be thrilled to see stocks crash. The longer stocks stay low, the more seeds they will sow.
For retirees, it’s different. After all, instead of buying stock market assets, they are selling because (in many cases) they don’t have an income, besides Social Security.
But retirees should also fight the temptation to run for those mountain caves. If they stick to an intelligent withdrawal plan, they should be able to retire on the eve of a market crash and not run out of money. Their biggest threat won’t ever be the markets. Instead, it will be the urge to speculate. It will be the urge to protect current portfolio values. Unfortunately, that pull to protect usually reduces future wealth.
The stock market, even more than the weather, has a knack for eventually hurting those who believe they can see the future.
Andrew Hallam is a Digital Nomad. He’s the author of the bestseller Millionaire Teacher and Millionaire Expat: How To Build Wealth Living Overseas