Investing

Open in case of crash

Note: I wrote the below article in August of 2021 when everything looked absolutely rosy. I thought that when a crash happens, it might be helpful to put things in perspective. As always, this is not investment advice, just my thoughts.

Now in May of 2022, we seem to be in a prolonged correction. Stock markets are down. Crypto is down. A “stable” coin has de-pegged significantly. At least on my twitter, many people seem to be somewhere between concerned and panicked. Thankfully, I am not. I knew this would happen at some point. I am mentally prepared.

I hold ETFs and some crypto (vast majority in BTC and ETH). I still believe in those. Are we at the bottom? Are we near it? I do not know. No one knows. I also hold real estate which is still doing fine so I guess that helps some. Will it correct later? Maybe. Probably at some point. Every asset class goes through cycles.

But I am not panicked. I am in my 30s. I have time. Eventually, things will recover. When? I do not know. But they will. Stay calm. Keep buying. Do not sell.

If you are struggling with the current situation and need help, please know that it is available: International crisis lines


So, I guess it happened.

The market crashed.

How much are we down from the top?
20%? 30%? Or even 50%? More?

It. Does. Not. Matter.
We knew this was coming.

We just did not know when.

So. Don’t. Panic.

Photo by Markus Spiske on Unsplash

And more importantly, don’t sell.

Do not follow the masses. If you sell, you will lock in your losses. Step away from that sell button! Imagine that it is not even there.

You might feel emotional. Pained. Angry? Do you regret that you invested money in the market at all? Don’t be. This is part of the deal. Markets crash, it’s a fact of life. And they will recover.

So instead of selling, what you want to do is buy. Everything can be bought at a discount right now. It’s a great opportunity, and it does not come around all that often.

How are we going to buy into the market right now?

Do you have any cash reserves? Get them into the market now. Any disposable cash that is sitting in your main bank account, get it invested now. Yes, NOW.

As usual, I would suggest to invest in EFTs rather than individual stocks. We do not know which companies will or will not recover. But the market as a whole is very likely to.

(May 2022 note: I am doing this, but I am choosing to DCA because I currently have unexpectedly significant cash reserves from a real estate sale. I have to admit that I am highly tempted to pick up some individual stocks but I am trying to hard to stick to ETFs.)

Ok, that’s a good start. But we aren’t done buying quite yet.

Photo by Lena Balk on Unsplash

What other money shall I use, you ask? Depending on your situation, you might have money lying around that you don’t immediately think of.

Personally, I often have some cash at home. I could get that into the bank and get it invested. It may not be much, but it is something! During a crash, every euro buys more than at the all-time-high we experienced before.

Or maybe you have a secondary bank account? I used to work in the UK, so I still have a UK bank account with some GBP in it. I could transfer that into my EUR based account and invest it.

Alternatively or in addition, do you have a separate savings account? I have one where I build up savings for an extra yearly mortgage repayment. I could throw some of that into the market too, or even all of it, if comfortable. Moreover, I have a “fun money” account. Perhaps there is some cash parked in there that I can spare? After all, what is more fun than riding the rollercoaster back up during a stock market recovery?

But… What about catching a falling knife, you ask? What if the market keeps dropping? Well… if the market keeps dropping, we will simply… Buy more!

I honestly believe that the best thing that you can do is buy consistently. Markets are high? I’m buying. Markets are low? I’m buying, ideally I’m buying even more than usual.

How are we going to buy more if the market keeps dropping?

As we already got quite creative on raising extra cash to take advantage of the opportunity, how can we keep buying more if the market keeps dropping?

Again, everyone’s situation is different, but maybe there is something that you could sell to rebalance? For example, I used to have gold in my portfolio, and maybe I still do. Perhaps the gold price is rising as the stock market falls? If you have assets of a different class, I suggest to monitor their price and wait for a good moment to rebalance from that asset into the falling one.

Photo by Zlaťáky.cz on Unsplash

Yes this is a little like market timing, but it is also a little like rebalancing. I don’t usually support market timing because I believe no one can time the market. But I do think that having target percentage allocations and rebalancing is generally smart, and this is often recommended and can even be automated for stock-bond portfolios. Why not employ this tactic for other asset classes too?

Don’t know how to pick the right time? Unless it is a property, you can usually sell down other assets slowly. For gold, I purposefully bought smaller bars, even if though they are more expensive on a per-ounce level. However, that gives me the freedom to sell them one by one to keep some potential for further upside on gold price increases and protect the downside risk of further market drops. (May 2022: I no longer hold the gold bars. Also, the gold price is not up. But gold here is just an example.)

Also, go into extra frugal mode to help you buy more

Right now, any money you don’t spend but invest instead is worth much more than usual. So make sure you absolutely maximize your savings (and invest) rates over the next few months.

Remember instant ramen? It can be quite delicious.

We don’t know how long this opportunity will last, but one thing is for sure: Any extra euro that you get into the market right now is a massive win for your financial future.

Every. Euro. Counts.
Save it. Invest it. Repeat.

Your future self will thank you for being extra frugal and getting that money invested right now.

(May 2022 note: I am currently on vacation so I am not exactly doing this right now, but once I am back home I will focus on keeping expenses in check to maximize my savings over the next few months.)

The bottom line

  • Don’t panic.
  • DON’T SELL.
  • Buy more.
  • Sit back, breathe, wait and eventually enjoy the ride back to the top.

How are you doing during this market correction? Will you continue buying? Are you worried about the long-term? Share your thoughts below.

10 thoughts on “Open in case of crash”

  1. Great post! I find having a plan before a crash makes all the difference for me! I’ve tightened up my spending a bit in case inflation gets way out of hand, and to free up cashflow to keep investing. my strategy is

    I-Boday $10K (hard t argue with 9.62%?
    $VTI 70%. (Total Market Fund US)
    $SPYD 20% (Dividend Fund)
    $VSUS 10% (Total Market Fund International)

    This too shall pass! Buy what you can and stick to the plan!

    Liked by 1 person

    1. Oh I’d love to buy I-Bonds. From what I understand, being outside of the US I can’t though, right? I wish we had something similar but I have not been able to find anything that is similarly attractive.

      Your plan sounds pretty solid! It’s always good to have a plan. I find that when I write it down, I’m likely to follow it too. Wish you all the best with it.

      Like

      1. Thanks Adam! Do you have any suggestions on how/where to monitor that? I must admit I am pretty clueless when it comes to bonds, I have never invested in any.

        Like

    1. Glad to know that you enjoyed it. Bear markets definitely are different, but I’m trying to see it as an opportunity. I think your frugality will certainly pay off! But now I’m curious what “unfrugal” things you did in the bull market 😀

      Like

      1. Haha hard to pinpoint one behavior (actually, it isn’t–I topped some growth stocks in February at the height of the euphoria!), but it’s more of a mindset than anything. It’s easy to lose track of the value of a dollar in a frenzy, but I’m much more appreciative of my hard-earned cash in a bear.

        Liked by 1 person

      2. Oh I definitely bought at the top too. It’s a learning for me from the bull run not to get carried away with “oh it’s going up, let me buy more”. But that’s why I love DCA. Always be buying 🙂

        Liked by 1 person

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