Is anyone feeling nervous about the stock market lately? The S&P 500 is down nearly 10% this year, which could make January the worst month for the stock market since the apocalypse that was March 2020.
If you’re worried about a stock market crash, are you doing anything to prepare for it? On the flip side, if the stock market crashed, would you use it as an opportunity to invest more?
About a year ago, I got a letter from a 28-year-old man who was wondering whether to cash out his retirement savings of about $100K to prep for a crash. https://www.thepennyhoarder.co…-cash-out-of-stocks/ He figured that using his money to pay off his mortgage had a guaranteed return in that he’d save money on the interest, whereas stock returns are never guaranteed.
Clearly, he’s made a lot of smart decisions if he’s 28 with $100K in retirement savings and owns his home. Cashing out would be a huge mistake in his case, though. Stock market returns aren’t guaranteed, of course. But over a long enough time horizon, S&P 500 returns have always been positive. Plus, he’d take a big hit between the income taxes and 10% early withdrawal penalty.
For those who are retirement age, I do think now is a good time to review investments and make sure you have enough cash on hand so you don’t have to sell investments when the market has already tanked. Too often, people only prepare for a stock market crash once it’s already happened.
I’m not especially nervous about a stock market crash. But I’m 38, so I realistically have quite a while until retirement and I can expect several more crashes during my career. Then again, I remember the sinking feeling in my stomach when I checked my 401(k) and Roth IRA balances in March 2020. It’s easy to say right now that I’m not worried. But when the market is actually crashing, it can be tough to keep emotions in check.
Has the topsy-turvy stock market affected your investment strategy lately?