Licking Wounds, Feeling Optimistic

Anyone who has logged into their stock investment accounts has felt the sting of their account balance drop. My 401k is down 33.1% YTD as of Oct 8th and the rest of our stock holdings have lost similar percentages. House prices are declining. We are in a world wide financial crisis and there is no light at the end of the tunnel....yet.

However this looks to me like your classic financial crisis. I mean classic. Things look terrible, people are scared, and the world is basically ending. However if you look at historical annual returns of US stocks, we often have a sharp recovery in the next couple years after annual drops like what we are seeing. I have been adding to our holdings of Vanguard Total Stock Market Index ETF as its value continues to fall. I don't know how low it will go, but I believe a couple years from now I will be wishing we invested more.

Another bright spot to me is housing prices are going down. Yes my wife and I own 3 small houses, but we are interested in buying a more permanent, larger house for us and we have continued to wait for housing prices to decline to more reasonable levels. Eventually our area should catch up to the negative trends of the larger market and we will be ready to jump in.

Even with everything going on I am feeling optimistic.

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Comments (13)

2Mil,
Get real. You are heavily leveraged and a sustained recession could really hurt/cripple you. Consider how you would pay the bills if you lost your job tomorrow and could not find a comparable one for six months or more. IBM used to be a stable employer. They are still much better than most but they will downsize or outsource if their revenue stream dictates it. You did a smart thing getting overseas experience and it is great that you are getting promoted but you are still vulnerable to the whims of your employer. I have degrees from an elite engineering school and have been laid off/let go 5 times along with most of my dept (chip design) in the past 20 years.
Your wife is a teacher which is a noble profession but when tax revenues go down, she will have a more difficult time finding a job. Plus competition for jobs will increase delayed retirements and new entries to the market.
Please tell us how you have planned for the six sigma event(1+ year flood) that appears to be hitting the world markets. How is your cash flow without your job? What would happen if you lost your tenants? What would happen if your lines of credit got closed?
My cash was at 30% before June. I've been hurt badly in the market but I can survive for a few years without income. I have no debt (no house) and no kids. Like you I manage my expenses wisely.

Posted by dd lang | October 9, 2008 9:59 AM

Very good post. We could all use a break from the CNN and MSNBC outlets who sensationalize all the doom and gloom. A good reminder of the bigger picture is a good thing every now and then. Thanks for providing that!

Posted by Money Beagle | October 9, 2008 12:01 PM

Where is the Sept. update? How bad did you get hit? 20k? 30k?

Posted by Anonymous | October 9, 2008 3:47 PM

2 Mil, I feel optimistic just like you. I've also been adding to my stock portfolio as it has been falling and although I own a house, I can't wait to buy another house when the real estate has finished crashing. I'm a 39 yr old doctor who owns my own practice so I don't have to worry about losing my job. Patients will always need care regardless of how the economy is doing. Understand the financial risk/reward and enjoy the ride..........

Posted by FL | October 9, 2008 9:41 PM

Ya, why doesn't 2 million's new net worth reflect the huge decline in stock valuations? It's as if the net worth stayed the same as last month and even increased. Quite confused here.

Posted by Steve | October 11, 2008 12:25 AM

Sorry - way behind - still computing September's net worth statement. Should be out within a few days - it was definitely down.

Posted by 2million | October 12, 2008 10:32 AM

As you seem to be doing, do you think that it is advisable to get into the stock market, as a beginning investor now, considering, I'm here for the long haul, at 24?

Caleb
www.mefinanciallyfree.blogspot.com

Posted by Caleb Nelson | October 13, 2008 4:28 PM

I like your site....i come to it now and then when its current....keep it up....i did not sell anything - but went from $1.3M to $700k or so (hurts to look)...based on my experince and your last blog...do not get overextended on real estate....get your present mortages paid off...i just did and it feels good....you have a good attitude towards buying more shares....relax...your getting there and dispense the angry mr. elite engineering's quips above...albeit salable ones...

Posted by j s pittsburgh | October 13, 2008 7:45 PM

2Mil, I agree with you! I am BUYING right now. Don't worry about what the first comment says. The fact is that you DO have your job right now. just look at what warren buffet is doing. he is buying like crazy. You are right, it will bounce back. the only questions is whether or not we are at the bottom. Right now I think that we very well could be near the bottom. Good luck and keep positive!

Chad C.

Posted by mortgage leads | October 14, 2008 3:52 PM

RE: Chad --> Here we go again with the Warren Buffet nonsense...The man isn't buying common stock, you dolt!

He is buying preferred stock and getting warrants...That likens his terms to Lonny the Loan Shark, and makes it a no brainer to park ungodly amounts of cash into companies like GS.

Do I need to remind you the amount of money he lost with WB? Seriously, get lost!!

We are DEFINITELY nowhere near the bottom...After that meaningless rally yesterday, do you think we would get hit with another -700 down day today?

Anyone on this board would be wise to sell now, take a tax loss, and buy when the markets have had time to digest the bailout. I'm currently 100% in cash and probably won't buy until January at earliest.

I have no problem getting a modest 3.5% on my E*Trade Max Rate Checking account and am not losing sleep.

Missing a small piece of the upside is a small price to pay when you are risking your entire livelihood on product companies that are going to get vaporized in the next 2 quarters with earnings.

Posted by concerned | October 15, 2008 4:54 PM

I'm down a similar percentage but trying to take a glass half full approach as well. Like 2mil I'd like to pick up a property in the housing collapse, one big enough for a family unlike the little cottage I have now. I'm still investing the same amount I always have, if I put more into the market that takes away from my ability to save for a downpayment. My current house is underwater so I'm just going to hold onto it, it's a block from a university so I can rent it out, but I can't get a downpayment out of it. I'm torn, maybe I should put more into the market instead...

Posted by Miss M | October 16, 2008 4:46 PM

I am an avid reader of your blog and similar background in terms of age, assets, career stage, etc.

Back in the day I did quite a bit of day trading on stock volatility and actually made quite a lot of money doing so. Then bought a house in 2000 and pull my "play" money out of the market (and it's good I did). Since then, I've simply invested in well diversified boring mutual funds.

Here's my question: I agree that the price of equities may well look dirt cheap in a few years so I want to buy. I've considered using ETFs as a vehicle to do so, with some potential short-term trades, as well. It seems Asian markets always mirror US movement. Does it make sense to long or short a US-traded Asian ETF based upon the current day's movement in the S&P500? My theory is that much of risk of not knowing which way an investment is headed is mitigated with this strategy. Somewhat risky, I know, but I'm looking to "play" with some money to see how things go.

Thoughts from everyone are welcomed!

Posted by Eric | October 16, 2008 6:41 PM

Mine is down almost 50%, I could have bought a used car wit that money

Oh well it's just a paper loss

Posted by moneymonk | October 17, 2008 1:35 PM