Worried About the Market Crash

Our Semi-Retired Columnist Isn’t Worried About the Market Crash. Here’s Why.

Eleven years ago, I watched in horror as my 401(k) account melted away during the financial crisis and bear market.

Now, semi-retired, I have a good bit more money in stocks, and I haven’t looked at my account in a couple of weeks. I felt strangely detached as I watched the tumble that sent U.S. stocks into a bear market this past week.

What gives me my calm? Do I think the coronavirus menace is overblown?

Not at all. Our country faces its worst public health threat in many years. There will be some tough days for all of us. Fear is appropriate.

But I am serene about the market tumble itself. That’s because I’ve set aside enough cash and bonds to live on for years without selling any stocks. I plan to nurse that cash pile until the market recovers. I’m earning more money as a freelancer than I figured when I lost my full-time journalism job last year. That helps. I’m also in the process of selling another asset that will bring in more cash. And we’ll be cutting our spending at least for a while.

I got religion during the last crash. Stocks are great for building wealth. That tax-deferred account I fretted over 11 years ago is now three times as big, thanks in good measure to the epic bull market that just ended. But you can’t count upon stocks for essential living expenses. They are simply too volatile.

If you’re forced to sell stocks during a market crash, you will do irreparable harm to your portfolio. Some day those stocks will bounce back—likely spectacularly—but if your money is no longer in them it won’t matter.

So, if you’re feeling as horrified as I was in 2009, take a deep breath. If you’re still working and stuffing money into your 401(k), then a lower stock market should benefit you. That company that you were buying two weeks ago? Well guess what, the price just went down by a bunch.

If you’re retired and drawing down your assets, a market downturn is more serious. Now is the time for a sober look at your finances. Start by identifying your essential monthly expenses. How close are you to meeting them through stable sources of income like Social Security and pensions?

If you’re already there, then you can wait out the market. If there’s a gap, you may be able bridge it though spending down safe assets like cash or bonds. Consider buying a low-fee income annuity that gives you a monthly check for the rest of your life. If you’re worried that this would sap your heirs’ inheritance, the insurance industry in recent years has been selling annuities that pay out for a certain number of years and give any excess money to heirs if you’re no longer alive.

If you don’t have the means to bridge that gap, then you need to think about tougher medicine. Move to a cheaper house. Consider taking out a reverse mortgage line of credit on your existing house. You can draw down the line of credit when the market is dropping and sell stocks when the market is rising.

People are right to be scared about this new coronavirus. We may need to take drastic steps to protect the most vulnerable among us. The accompanying economic contraction could easily throw us into recession, and send stocks even lower than they’ve already fallen.

But we should never forget the country we live in, and the challenges we have surmounted over the years. The economy will come roaring back to life, and stocks will soar. Count on it. You need to market-proof your finances as best you can until that day arrives. By Neal Templin. I have been preaching this for years; one of the top lenders put together a 30 year scenerio where the homeowner used a Reverse Mortgage credit line during bad times and spend from his retirement portfolio in good times. The results were overwhelming. Ask me to send you a copy.