Don’t Stop Investing When SHTF

Yikes! Things are not looking good on the stock market. The banking sector is floundering after the collapse of Silicon Valley Bank and Signature Bank. First Republic and other regional bank stocks are tanking. Credit Suisse dropped to a new low due to liquidity issues. If this doesn’t send chills down your spine, I don’t know what will. Fear, uncertainty, and doubt (FUD) are spreading to other sectors. Oil prices fell sharply. Tech layoffs continue. Is this the beginning of the long-awaited recession? Nobody knows, but the stock market will be very volatile for a while.

This is a crucial time for investors. Our first instinct is to escape from fear and pain. I feel it too, but I know I need to resist it. Many investors will rush to sell and flee to safety. However, that’s the wrong move. This is how investors lose money. They sell when the stock market drops and they get back in too late. The best thing you can do when the stock market is crashing is nothing. That’s right. Just stay the course and stick with the plan.

I’ve been through several stock market crashes and my only regret is when I stop investing.

Learn from my mistake

Everybody makes mistakes. The important thing is to learn from them so you don’t repeat the same mistake. I started my engineering career in 1996 and my dad convinced me to save for retirement right away. That was great advice. Thanks, Dad! After a few years, I was able to max out my 401k contributions and I was on my way to financial independence.

However, I made a big mistake in 2000. The Dot Com bubble popped and the stock market crashed. My stock portfolio was losing money daily. I got scared and stopped investing for almost a year. When you are a new investor, it can be very difficult to invest more when your portfolio keeps going down. At least I didn’t sell all my stocks when the market was down. That would have been disastrous.

Eventually, the stock market recovered and I maxed out my contributions again. Some of my friends sold their stocks and got scared off of the stock market for years. We missed out on a great investment opportunity. If we kept investing during that crash, our investment would be worth more than 4x the money we put in. We also missed out on the retirement account tax deduction and company matching. We thought we were smart to avoid losing money, but we were wrong in the long term.

Fortunately, I learned from my mistake. The stock market crashed hard when the global financial crisis hit in 2008. That time, I didn’t flinch. My wife and I both had steady incomes so we felt reasonably secure. We invested all of our extra money during that recession. Wow, that was 15 years ago. Man, I’m getting old.

I knew the best time to invest is during a recession. You can buy more shares with the same amount of money. We were young and we wouldn’t need our retirement accounts for many years. In that situation, you should invest as much as you can in the stock market.

Don’t stop investing

The stock market crashed again in 2020 due to fear of the pandemic. We kept investing and it turned out great. This time is no different. The stock market probably will drop more, but we’ll stay the course.

  • 401k – Mrs. RB40 will continue to contribute to her 401k. For 2023, the 401k contribution limit increased to $22,500. She already increased her monthly contribution to reflect it. This will all go into a target date fund. Simple, but effective.
  • Roth IRA – The Roth IRA contribution limit increased to $6,500 this year. We already contributed the max to both accounts. Most of this is sitting in the money market fund for now. I’ll dollar cost average into the stock market over the next few months.
  • Taxable account – I haven’t purchased any new dividend stock yet. We don’t have much cash left after contributing to our retirement accounts.
  • RB40Jr’s 529 – No cash so we’ll have to wait a bit. I’ll try to contribute $1,000 next month.  

In fact, the perfect time to buy more stocks is during a recession. When you invest during a recession, your purchase price is lower than normal. The stock market should recover at some point. Your perseverance will pay off.

Some scenarios

Of course, everyone is at a different point in life. Investing more at this time might not be a good idea if you need money to pay the bills. Let’s look at a few scenarios.

Young investors – If you’re young and just started investing, it’s best to focus on increasing your investment. Try to max out your 401k contributions as soon as you can. Don’t worry about the stock market volatility. It won’t matter in the long term.

Experienced investors – For those of you who have been working and investing for a while, it’s crucial to figure out an asset allocation you can live with. This recent stock market crash is a good test. If you own a lot of stocks and can’t sleep at night, then you probably need to invest more conservatively. My target asset allocation is 80/10/10 (stock/bond/alternatives). I have been able to ride out the volatility without stressing out too much. Also, when the stock market crashes, you should rebalance. This will force you to buy more stocks when the price is down. That’s good for the long term.

Near retirement investors – If you’re planning to retire soon, you will need more cash cushion and probably should go with a more conservative asset allocation. Most early retirees in the FIRE community have at least one year of expense in cash. This will enable them to avoid selling stocks when the market is down. We also have a good percentage of our assets in I bonds. If we need cash, we could sell bonds instead of stocks. Once the market recovers, we can rebalance back to our normal asset allocation.

Keep investing

In a crisis, our instinct is to conserve cash. This impulse becomes even stronger when we see our net worth decrease every day. It might seem smart to sell stocks and keep the money in the bank because the balance won’t decrease so much. However, you don’t know when to buy back into the stock market either. It is extremely difficult to time the market. Even professionals get it wrong. For regular investors, it’s much easier to keep investing during turbulent times.

In conclusion, long-term investors should keep investing during a recession. It is a good chance to buy some stocks at a bargain price. In 10 years, your portfolio will be worth a lot more if you stay the course. Dollar cost averaging for the win!

Are you staying the course? Don’t stop investing or else you’ll regret it in 10 years. It’s hard to buy when the stock market is falling, but it will turn out well. Don’t stop believing!

*Passive income is the key to early retirement. These days, I’m investing in commercial properties with CrowdStreet. They have many projects across the United States. Go check them out!

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Image credit: chuttersnap

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Joe started Retire by 40 in 2010 to figure out how to retire early. After 16 years of investing and saving, he achieved financial independence and retired at 38.

Passive income is the key to early retirement. This year, Joe is investing in commercial real estate with CrowdStreet. They have many projects across the USA so check them out!

Joe also highly recommends Personal Capital for DIY investors. They have many useful tools that will help you reach financial independence.
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20 thoughts on “Don’t Stop Investing When SHTF”

  1. Hi I am currently putting extra money towards my mortgage to pay off as much as I could while my mortgage interest rate is still low. I have to refix end of this year n expecting 3 x higher interest rates by than.

  2. still investing in 401K, but had recently decided to sop investing into taxable brokerage account. Redirecting those funds to finish paying off the mortgage, want to be mortgage free by year end.

  3. I’ve made many investing mistakes over the years but when I was younger and didn’t know much about investing, I just continued to push money into my 401(k). I didn’t really even look at my balance much for probably a good decade or so. After passing through the dot com bust and the 2008 crisis, I ended up with a hefty 401(k). By 2021, it was worth over $1 million. I’ll call that dumb luck of not even thinking about pausing investing but so appreciative that it happened, of course.

    100% agree with you on this, Joe. For anyone newer to the path to FI, just keep putting money into low-cost broad-based index funds and don’t even pay attention to the markets. You’ll wake up rich one day.

  4. I am dollar cost investing in both of my kids 529 plan accounts at the moment. We plan to contribute $17,000 each, and we have contributed about $10,000 each so far.

    I’m also buying stocks with the S&P 500 is below 3900. But I’m plowing so much into treasury bills, yielding 5% plus. It’s too good to not do so!


    • Oh wow, your kids’ 529 will be huge. That’s great. We are pulling back a bit on the 529. We’ll contribute about $4,000 per year. Maybe he can go to a Canadian college for a couple of years.

  5. Why DCA the roth IRA investment? IRA contributions are every year and is similar to DCA if you zoom out to year over year. “Time in the market”, right? Why not just put it all in the market based on your asset allocation? The money is otherwise still “invested”, you are just warping your asset allocation toward more “cash” temporarily.

    I think DCA is for when you get a bunch of new funds suddenly that you didn’t have before (e.g. inheritance, lottery, sale of business/asset, etc.). An IRA contribution is generated over time through earned income.

    • You’re right. A few months won’t make a difference. But it just makes me feel useful. I think the stock market will drop more so I’m going to wait a bit. Half of it is invested already.

  6. Nice to see you’re investing in dividend stocks…the only way to be FIRE without selling and reducing your net worth !!! Funny that few agree with that in the movement.
    Now the banking thing is financial news and we should stay away from it…not sure why FIRE bloggers love to do what they tell not to with CNBC and the likes

    • Passive income is the key to FIRE. It’s much more secure than drawing down especially when you have a very long time in retirement.
      The CNBC thing. Do you mean to avoid paying too much attention to the news? That’s hard. We all depend on our banks. If there is a problem coming, I need to know.

  7. at our age with mrs. smidlap retired we are drawing from a taxable account around the same amount i’m putting into my 401k if you include the generous matching funds. so that net is about zero. we could cut back and invest more but we don’t want to do that.

    if we were 20 years younger and both working full time you bet we would be shoveling money into investments with both fists, though. i would even accept overtime assignments like back in the old days to buy more stocks. all will turn out fine.

  8. I am curious what your plan would be to take advantage of the downturn.

    Invest in tranches?
    Buy when the SP500 is down 15%, 20%, 25%, etc.?


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