Lessons Learned from this crash:
1. Have around five years worth of cash equivalents available—to endure a prolonged bear market without being forced to sell anything. When I first encountered that piece of advice, from Jane Bryant Quinn, I thought it was excessively, ridiculously cautious. But now I believe that the older you are, the more precarious your sources of income, the more sense it makes.
2. Don’t panic and sell when the market swoons. But if you don’t have enough in cash, perhaps you should sell a little…gradually. To suffer a steep loss now may be preferable to suffering an even steeper loss later.
3. Exchange losers. I sold A and bought A1. I was shocked to see how much of a loss I had sustained in A (in my taxable account) in just a month or so. So I sold A, nailed down the tax deduction, and bought something very similar but not “substantially identical.” I ate my cake and had it. Okay, I don’t feel very patriotic, stiffing Uncle Sam like that; but Uncle Sam helped get us into this mess, so maybe Uncle Sam should share a little of my pain.
4. Have a favorites’ list. Stocks you would love to buy if the whole market came crashing down. (A favorite of mine is JNJ.) Continuing to dollar-cost-average into mutual funds in a bear market requires a plentiful supply of courage. If you buy something that you are pretty sure is among the best of the best, you need considerably less courage.
5. Don’t believe those people who joyously tell you that this is the buying opportunity of a lifetime. That’s what they were saying in 1929. Okay, it may well be a great time to buy. But I wouldn’t bet the ranch. People who never bet the ranch never lose the ranch.
1. Have around five years worth of cash equivalents available—to endure a prolonged bear market without being forced to sell anything. When I first encountered that piece of advice, from Jane Bryant Quinn, I thought it was excessively, ridiculously cautious. But now I believe that the older you are, the more precarious your sources of income, the more sense it makes.
2. Don’t panic and sell when the market swoons. But if you don’t have enough in cash, perhaps you should sell a little…gradually. To suffer a steep loss now may be preferable to suffering an even steeper loss later.
3. Exchange losers. I sold A and bought A1. I was shocked to see how much of a loss I had sustained in A (in my taxable account) in just a month or so. So I sold A, nailed down the tax deduction, and bought something very similar but not “substantially identical.” I ate my cake and had it. Okay, I don’t feel very patriotic, stiffing Uncle Sam like that; but Uncle Sam helped get us into this mess, so maybe Uncle Sam should share a little of my pain.
4. Have a favorites’ list. Stocks you would love to buy if the whole market came crashing down. (A favorite of mine is JNJ.) Continuing to dollar-cost-average into mutual funds in a bear market requires a plentiful supply of courage. If you buy something that you are pretty sure is among the best of the best, you need considerably less courage.
5. Don’t believe those people who joyously tell you that this is the buying opportunity of a lifetime. That’s what they were saying in 1929. Okay, it may well be a great time to buy. But I wouldn’t bet the ranch. People who never bet the ranch never lose the ranch.
