Okay, since I’m posting my net worth, I am probably going to be ready to cry soon. I know our investments are down like 30-40% for the year. Sure it’s bad but we’ve got time to rebound and recoup. We’re still investing and sitting tight. No panicked selling though I have to reconsider what we should do when the beginning of the year rolls around for rebalancing our portfolio. Since everything is down, it’s not like I have to sell a good category of mutual fund and buy an underperforming category.
So my title is stop investing, but not from fear. Fear of the unknown of the stock market is not the reason to stop investing. But I am leaning towards not investing right now for other reasons. What might that be? Layoffs. I feel it in my bones that layoffs are coming. I mentioned a post about Pinching Copper coping with a layoff. I think that a lot of people will either face a layoff, or maybe if they are in a variable or commission based job a major down time. Where their sales or profits are down for longer than they expect.
I mean even recession proof jobs like doctors and healthcare providers are feeling the crunch. People are delaying and stretching out the time between office visits to cut on costs. And of course owners of small businesses or restaurants are feeling the hurt.
And yes I realize it’s a dream market to invest in. But I wonder if it’s worth investing in excess cash that might be needed to shore up your lifestyle when you lose your job? Or if it takes 6 months instead of 3 months to find a new job?
I fear that while the opportunity is present to make a lot of money in the down market, much like Warren Buffet, I don’t think I can afford to take the risk. I have to meet my monthly bills. I could swallow the risk of the money going down and up again, but I can’t when I use up 6 months of cash for emergencies and still don’t have a job. Or if I were laid off and had a medical emergency crop up?
Right now is a great time if you have say 3-5 years in excess cash to be investing. But if you have a mortgage, student loans, car loans, etc, it’s probably not wise. Or if you are the sole breadwinner with only 6 months of cash saved? I’d be treading carefully.
18 responses so far ↓
1 Kristy // Nov 1, 2008 at 10:08 am
I work on commission and I am the breadwinner in our house. We have enough savings to live for probably 2 years if I lose my job or if as I predict things slow down next year. We are investing heavily in our retirement and plan to do so until things slow down (if they do) next year.
I understand what you are saying, however, I can not justify not investing right now. It is the perfect time to do so. I enjoy having an emergency fund/savings, but that is what it is for, to use when you lose a job, have a medical emergency, etc. I think you might be missing out on some great opportunities.
2 LivingAlmostLarge // Nov 1, 2008 at 10:56 am
Kristy, what happens if it slows down? You can survive on just one income right? So do you need so much cash savings or is it more that it will be depleted by natural uses like car repairs, home repairs, vacations, etc?
Like I mentioned last month I broke my foot. If we were unemployed and had minimal HDHP we’d be paying a $5k minimum + extras for all the stuff I had done.
Thus I’m not sure with our health insurance resting on my DH’s job that I’m happy with the idea of investing any excess cash. I really want to be able to fall back on our savings in case.
In our field 1k jobs lost last month and 3 more companies will announce layoffs in December 2008. This is because friends called asking for jobs, not because it’s public knowledge. So gosh knows what our situation is.
3 Kristy // Nov 1, 2008 at 11:23 am
Actually we live on my income and we save my husbands income. We would not be able to live on just my husbands salary, especially when we factor in health insurance costs. So if things slow down next year, then we would have to use our savings for bills and health insurance. I am sure that I would try to get a night job or something to bring in some income, but we would have to use our savings. Currently, we are trying to save a bit more cash because I will be out on maternity leave starting in April. I don’t get a paid maternity leave, just 12 weeks off per the Family Medical Leave Act.
I work as a commercial real estate appraiser, so I am not sure what will happen next year. We will either slow down due to the economy or we will be fine because of the bailout. We have no idea what will happen next year. The good news for me is that I have been persuing higher education and am almost finished with my designation. So, I might be alright. Time will tell.
4 Kristy // Nov 1, 2008 at 11:40 am
I just typed a long post and now it disappeared. Right now we live on my income and save my DH’s. We could make it work for him to stay home, however we would not save anything for retirement or college. If something happens to my job, then we would have to pay for health insurance and we would not be able to live entirely on DH’s salary. So, we would use savings and I would probably try to find something part time and at night. We would have to cut some things as well and I would have to become very good at shopping the sales.
I am a commercial real estate appraiser, so things could go badly fairly quickly, especially because of the struggling economy. However, we are not sure if it will completely slow down because of the bailout package. We might still have to appraise properties for banks. I don’t know what will happen.
We are in the process of saving even more because I will be on maternity leave next year starting in April. We don’t need to do this, but I don’t like digging into our savings if we don’t have to, so we are saving even more. Plus we should start a college fund for our second child because that is what we did with our first. And we might need to purchase a car next year, not because of the new family member, but because one of our cars has alot of miles on it. We are playing it by ear and waiting for it to die or become too dangerous to drive with kids before we replace it. Anyway, so I like to have a pretty nice cushion to begin with and will have even more of a cushion because of the new baby.
I guess I just thought that you already had an emergency fund in place and although you would be worried if one of you lost your job you would be able to make it.
5 Fabulously Broke // Nov 1, 2008 at 12:28 pm
Agreed.
I have extra cash, which is why I’m taking advantage of the situation, but if I earned less and had debt, I’d be very careful, no matter how tempting it may seem.
6 SP // Nov 1, 2008 at 12:42 pm
Stopping investing until you have 3-5 years cash IS stopping because of fear. Maybe not fear of the markets crashing, but fear that you will need that cash. I think that is what most Americans are afraid of.
I have maybe 1 year max saved. I’m the “Breadwinner”, i guess, as I’m unmarried. I’m not going to quite investing.
7 LivingAlmostLarge // Nov 1, 2008 at 1:18 pm
My DH makes the bulk of our money and our health insurance. I have a stable income but it only covers 25% of our income or maybe less. So without his job, we’re in deep trouble. We have 6 months, but I worry that finding another job in this economy will take longer. He is worried as well.
The higher your income, the harder it is to replace. Also we followed the 25% PITI guidelines, but that’s with a joint income, because based on my income we could afford $500/month rent. NOT feasible even in lower cola.
But I’m not ready to leap into the market until we know what the next year holds. The market is fantastic, but with so much layoffs coming, I won’t mention which 3 companies I personally know are laying off people, I have bad feelings. Most of these people have doctorates and earn 6 figure incomes.
How easy will it be to replace and quickly? I really want 1 year of income or something crazy like that.
We knew what we were getting into. We’ve been careful about our budget and we’re expanding our horizons by getting extra degrees, an MBA for my DH. This way we are less dependent on one job industry and not both in the same industry like now.
But it is scary to have a mortgage. It’s scary to know if we lost our jobs and we went 6 months we’d be cutting it close, probably we can last 1 year right now but that’s without health insurance.
My DH took almost 1 year find his job out of graduate school. Most people take around 1 year. So we’re very cautious.
8 frugal zeitgeist // Nov 1, 2008 at 1:57 pm
My 401(k) alone took a six-figure dump. I’m still maxing it out, but I’m otherwise sitting out and cranking up my emergency fund. Beyond that, every day I am thankful that my mortgage is paid off.
9 LivingAlmostLarge // Nov 1, 2008 at 3:25 pm
A 6 figure dump? Was that in one month or the YTD FZ? I think $12 last month was bad enough, I think 15% in one month. But otherwise we might be down like 40% for the year? ouch.
10 fengshui // Nov 1, 2008 at 8:46 pm
What about a temporary change in investement “products” like a CD or HY savings instead of 401K?
11 DiaryofADINK // Nov 2, 2008 at 4:33 am
We have 1.5 years saved in a cash account for emergencies and the like that we weren’t able to find a suitable investment for this year. I’m glad we kept it in cash when we didn’t find a house.
We don’t have a mortgage so we rent. We’re married but live on the lower of 2 incomes. I’ve lost hours at work but we increased our 401k contributions to 25% for this final quarter of 2008 in September.
I hope I can look back 1 year from now and say we were right to do this. I have a strong feeling the market will not bounce back…it will climb back slowly after a deeper fall.
The malls are still packed. That tells me the recession hasn’t hit people too hard. When people STOP spending and start saving…then I’ll know a rebound is on the way.
DINK
12 fengshui // Nov 2, 2008 at 2:00 pm
Good for you DINK, for having 1.5 years saved. Is this 1.5 years of “bills” or 1.5 years of income?
For us, 1.5 years of income would be over $150k and to me, that would take an eternity to save up (at a minimum of 5-7 years) , since our yearly income amount is fairly new to us….. I think that we lack the discipline needed to be aggressive savers. And I just can’t seem to get through to my hubby that it is NOT ok to go out and spend $150-$200 every Saturday by buying football tickets (we live in a college town), and buying lunch and dinner out and rounds of drinks with his friends. He feels that “he works hard all week and deserves to have a little fun” (his exact words), and doesn’t seem to care that it added up to over $600 during the month of October….. I’m pulling my hair out in frustration….. Any ideas anyone?
13 LivingAlmostLarge // Nov 3, 2008 at 11:55 am
I think as long as you are satisfied with your savings then it shouldn’t matter what you spend the rest of your money on. It’s what makes you happy. But if you are unhappy about spending the money on football games, then talk to him about it.
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