Our First Bear Market: Losing $100,000

Since learning how to be a self-directed investor, my wife and I have been reading heavily on how to react during our first bear market. For all you new investors, a bear market is defined as a 20% drop in the stock market from its all-time highs. Out of all information we consumed from books, blogs, and podcasts, it really just boiled down to one message:

STAY THE FREAKING COURSE

Staying the course doesn’t mean blindly going head-on into the storm, but how to navigate the storm per your personal investment policy statement. This is something everyone should think about creating to achieve their long term financial goals.

On March 11th, the longest bull market in history ended due to COVID-19’s impact on the economy and on many people’s lives.

Being in the official bear market territory, I knew I had to brace myself for attacks on multiple fronts. Especially, with recent events calling into question how essential my job as a physical therapist really is during this global pandemic.

• Was I prepared to handle my first time experience with job insecurity?
• Was my investment resolve strong enough to withstand the stock market nosedive followed by volatility as the world responds to the crisis?
• Did my thought exercises and my investor policy provide any guidance in these uncertain times?

With all the uncertainty in our first bear market, I knew I had to tread lightly and pivot quickly.

1. Our investments plummeted by $100,000

Imagine if you check your accounts one day and $100,000 suddenly vanished into thin air.

Yeah, I’d be pulling my hair out too. My first thoughts were a few choice words followed by something along the lines of:

“Darn, I should’ve have sold when it was at its all-time high.”

“I knew the stock market was going to drop.”

“Should I sell now and buy back in later?”

Fortunately, these thoughts were brief and quickly replaced with some clarity. I became as cool as a cucumber and knew that this was the time for opportunity. Best of all, I still have all my hair. Why?

• My wife and I have been hoping for a bear market sooner than later. We could do without COVID-19 though.
• We have been building up cash reserves to take advantage of investment opportunities.
• We have at least another 30 years of investing, which is plenty of time to recover.

Our Money Moves

1. Continue our plan to max out our tax-advantaged accounts by the end of the year. However, I did need to increase my contributions to my 401k due to my employer noting that they may not offer a 401k package by July.
2. Per our investment policy, we completed tax-loss harvesting and realized $22,000 worth of losses to offset capital gains. We got lucky and did this right at the market bottom assuming we do not retest March lows.
3. I maxed out my ROTH IRA and my wife began contributing to hers as well.

Currently, our portfolio value has just recovered to just $15,000 short of its all-time high in February 2020. This is mostly because we continued to make regular investments. That’s not to say that it won’t dip back down, but it won’t make a difference. We will continue following our investment policy and avoid making decisions out of pure emotion.

2. myth: my job is secure

You would think that with baby boomers on the rise, the demand for physical therapists would also be booming right? Normally Yes, but not in lung-eating virus times.

The last time I worked in the outpatient physical therapy clinic was on March 10, 2020. I usually put in an extra 8 hours a week on top of my full-time job which was scaled back to 32 hours per week last February. Recently because of COVID-19, they have us basically as per diem staff but will pay benefits until July when they will re-evaluate the situation.

Even before COVID-19 impacting my job security, the Center of Medicare & Medicaid Services changed its reimbursement structure to a Payer Driven Groupings Model (PDGM). The change caused 24% of home health agencies to lay off therapy staff according to this article from Home Health Care News. That figure doesn’t even include those who have had their salaries cut. Unfortunately, I was one of them who faced a 20% salary reduction since therapy utilization has reduced. I was able to make it up with a second job, but that’s now out of the picture, it’s time to pivot before things get worse.

My Career Moves

1. I’m cashing out over 140 hours of PTO to either invest or build up my emergency fund.
2. I applied to 8 positions elsewhere
3. I’m dedicating more time to grow my side-hustles
4. I’m putting plans in place to have more control over the trajectory of my career and work-life balance.

3. Did COvid-19 kill my mom’s retirement plan?

Not quite.

While things seem bad for me, it could’ve been a lot worse for my mom. In 2018, when my wife and I developed a financial plan that would give us the option to retire early, I also began looking at my mom’s retirement plan. I was shocked when I found out that she was invested in 100% bonds for the last 20 years! Talk about a huge opportunity cost. Unfortunately, we can’t travel back in time to fix this, or can we?

Mom’s money MOVES

1. I convinced my mom that the best course of action right now is to exchange her bonds for stocks to work towards an asset allocation goal I set for her a couple of years ago. This has taken a lot of time for her to understand.
2. I adjusted her allocation from a 20/80 stock to bond allocation to a 40/60 stock to bond allocation as the stock market dipped back to 2016 levels. I am glad I thought of her because we were essentially able to travel back in time to improve her investments in ways I wouldn’t have known how to do back in 2016.
3. The goal is to eventually get her to a 60/40 stock to bond allocation with a 3.5% safe withdrawal rate which should leave her with near 100% success for not running out of money during retirement. I attached a visual from Earlyretirementnow (ERN), my favorite blog on something called the sequence of returns risk. “BIG ERN’s” has an ongoing series on this topic.

Sequence of return risk: “The danger that the timing of withdrawals from a retirement account will have a negative impact on the overall rate of return available to the investor.”

Investopedia

Final Thoughts

Making these career and financial related moves have not been easy. My judgment could have easily been clouded had it not been for my Investment policy statement.

Our first bear market is not over yet and if Q2 of 2020 continues to decline economically, we will officially be considered in a recession. I suspect that it will trigger even more fear of employers, consumers, and investors which will cause job loss and retesting stock market lows. The best thing we can do now is hope for the best and prepare for the worst.

Related: How to always be prepared for a recession

If you haven’t already, revisit your budget and begin to trim down your expenses. If you still have your job, you are one of the lucky ones. Do your best to keep your job. If you are in a more fortunate position consider helping those in your community. As they say, a rising tide lifts all boats.

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