Amid the Pandemic, this is a great time to remind ourselves of the long term thinking when it comes to saving money and investing. The keyword being “long term”. Those who have started very recently might be getting dissuaded by the humongous drop in the market and I am very mindful of that.

I started earning reasonable money in 2008. Anything I earned before 2008 was mostly stipends from Graduate school and minor internships here and there. When the 2008 financial crisis happened, I did not have any sizable portfolio invested in the market. I had just started a family (my daughter was born in April 2008) and my wife had started school. We were paying all those bills and were still saving money. That first year, we just saved money in our savings account since we wanted to buy a house ASAP while the market was at its knees. We bought our first home in December 2009. The next couple of years went mostly in paying the bills, child care, wife’s tuition, traveling and the new mortgage. We started stock market investing seriously only in 2012, although I was still buying ESPP (Employee Stocks) at a discount from my employer before then, which can be considered single stock investing. In December of 2014, we sold our first home and signed the contract for the new home we live in now.

I want to share from the experience of these 8-9 years of investing so that people don’t lose faith in this downturn. Yes, there will be a big reduction in everyone’s portfolio and it will hurt. But, we will still turn out to be winners in the long term.

I will use my 401K account to bring the point home. My 401K shows me that my portfolio’s return this year (YTD) has been -27.3% and that sounds horrible. Despite that, there is a silver lining. Every pretax dollar I ever contributed to my 401K is still cumulatively up by 45% (as of March 21st, 2020). There are two victories here. One, the fact that I have not paid taxes on this money and two that instead of keeping this money in my checking account (or under the mattress) or worse yet spending it away, this money has grown by 45%. If I use simpleton Math and average out my marginal tax brackets since 2012, the taxes would still have been close to 35% (remember California has high taxes). This is an 80% victory despite today’s low market valuation. For all this gain to be wiped off, the market has to fall 45% more (close to 2010 levels), which is extremely unlikely, although not impossible.  For the Math folks, the reason it only takes 45% fall to wipe off 80% gain is that 45% of 1.8 is ~ 0.8.

There are a few things to remember here in summary. Always have some portion of your portfolio in cash so that during a downturn, you won’t have to touch your portfolio invested in the market. Second, money invested for the long term in the market will always win over not investing or not saving altogether. If someone started investing in 2018, their portfolios will be showing negative results since inception but if they ride out this bear market and keep investing during the bear market if they can, there will always be a bull market on the other side of the horizon (over long periods of time, the stock market only rises cumulatively (see the image), despite the peaks and troughs on its journey)). So unless it is an emergency, please don’t pull out of the market at this time.

This is a message of hope to all my readers. Take care of your health and well-being and don’t touch your 401K and your face :-), unless necessary.