Across forums and news sources, word of stock values plummeting… And here I’ve encouraged broke people to put their money there, and gone and done exactly that with mine!
How stressed am I right now?!?!?!?!
Not at all.
When we follow a program as set out in The Millionaire Teacher, we’re fine, for the following reasons:
1. We spend less than we bring in every month. As a result, we’re not relying on investments or other savings to get us through from month-to-month. Because we use YNAB or a similar program, we know to the penny what we brought in last month and what our month costs us, and we wrap up with at least a few more dollars set aside every 30 days.
2. Our emergency fund is in a stable account, not invested. Yes, those hundreds or thousands weren’t making us more money all these months or years, but we’re not greedy. We set aside enough savings for life’s surprises -replacement of the hot water tank or car battery; two months off work when we’re cracking- and we keep it stable, in an unchanging account. Money we need for planned events -house purchase, contribution to a registered account, retirement- is in a similarly stable option.
3. Our investments are balanced. We wrote down our investment plan in advance and we’ve stuck with it. A portion is in stocks…and a portion is in bonds, cash, and other products which are unaffected when stocks rise or fall. So even within our investments we always have a portion that is stable. And we always have a portion available for the house downpayment we were planning to make, for our annual contribution to our child’s registered education savings plan, for the purchase of more stocks while they’re so cheap, and so on.
4. We didn’t invest in single stocks. That is, we didn’t buy x number of Apple or y number of Amazon. We bought 1-3 low-fee index funds. Each such “package” holds the tiniest sliver of Apple, Amazon, and hundreds of other businesses. (Click here for just one example of a low-fee fund and its list of 506 distinct stocks across different types of businesses and locations.)
5. We didn’t invest in a single sector or country. Within the 1-3 packages we bought are not only hundreds of businesses, but dozens of business types and countries. Diversified? Oh yes!
6. Anything we’ve invested in stocks is for the long-term (think 20-40 years). So whatever is happening with our stock funds today -or this month, or this year, or this half decade- has no real weight in our lives. The money is there to grow. We rebalance it every year. When we’re 5-10 years from needing it for that downpayment, education, or retirement, we’ll be moving it into those stable options we talked about in Point #2.
Have you been following me for a while but have no clue what I’m talking about in this post? I don’t talk about investing a lot because they way we do it is so simple, there’s very little to say. In my book, I lay out the basics. For more detail, I highly recommend reading books like The Millionaire Teacher (Second Edition) by Andrew Hallam. In his funny analogy, the dog has simply pulled on its leash as far as it can and the owner is catching up. No biggie, and if you’ve invested in a calm, ungreedy method, you’re just fine.
Too late for you? Never. If your investments are off-track, you can fix up your allocations anytime you like. (My first foray was terrible, and was costing me thousands per year! With help from Hallam and other good people, I got brave enough to kill those accounts and start fresh. No problem.)