Markets are crashing and it seems like a recession is imminent. But if you are long term passive investors, like us who invest in multiple capitalist economies around the world, you can take comfort in the fact that “markets always rise” and this is just another economic cycle.
After all, if major world indexes don’t recover, then you’ll have bigger problems to worry about, amirite?
Absolutely.
Let’s look at the one of the most world’s most known indexes, America’s S&P500.
This month’s dip looks like an absolute disaster when you compare it to January.
It looks even scarier when you look at the past year.
But if you look at it from a five-year view, it’s just another dip in a long and ongoing series of dips, which is part of life:
And if you contextualise the recent dip in the entire history of the S&P500, it’s just a laughable little blip.
At this point some of you will ask us “what if the markets never recover?”
You might start thinking that nothing grows forever and the economic cycle is dead. Soon after, you abandon your long-term mindset, sell off all your stocks, and turn your paper losses into real ones.
My response is:
- Structures built by the wealthy (like the stock market) are a lot more resilient than you might think. At any of the little dips someone probably said the same thing.
- Even if what you say is possibly true, then what is the alternative? Not to invest? We know inflation is going to fuck your money up. Pick a possible failure over a certain failure.
- In the event where all the wealth in the stock market goes to shit, I have absolute confidence in the ability for investors to rebuild their life vs someone who didn’t invest.If you’re someone with an investing mindset, you’re more likely to have the qualities to succeed in life – delayed gratification, discipline etc etc
- Even in the unlikely event that one MAJOR economy fails – like the US – someone else will step up and replace them. This could be China in the future, but things remain to be seen.
That’s what we believe in, anyway.
The day our money in S&P 500 or MSCI World Index is worth 0, would be the day capitalism stops existing.
That type of upheaval would also mean you should start working on another set of skills, like starting a fire, close quarters combat and removing your scent to avoid being found by tracker dogs.
Most Singaporeans won’t survive a scenario like that anyway, so let’s talk about how you can ride out the conventional recession instead – by building your holding power.
Holding power is EVERYTHING
Holding power is how long you can hold on to your investments without selling them. People always fuss about what companies to buy, whether or not to use a robo-advisor or which broker to use.
Nobody talks about holding power because it’s not sexy – until it is.
A wealthy person looks at the recession and sees opportunity, knowing it’s part of how the universe works. A poor person looks at the recession and sees hell and uncertainty.
If you have enough holding power, you can ride out any crisis and it will be business as usual, no change in lifestyle.
But if you don’t, be prepared to lose sleep, cancel your holidays, and lose all your investments and sell your home at a loss.
Thankfully, both the Great Financial Crisis and Asian Financial Crisis took about two years, six months to blow over and for economies to start their recovery.
We don’t know how long the next crisis will last, so let’s round that up to two years. (But if you want to be really, really safe, there is no fault in prepping for a longer duration)
Now, this is the time you need your emergency savings to last – you don’t have control over the global economy, but you can manage how long you can stay afloat.
| Outcomes during recession, ranked | |
| 1 | Not only did you have holding power, you invested more money during the recession. You earn from recession.
What it looks like: Emerging from recession 20% richer. |
| 2 | You had holding power, but you could not invest any more money. Emerge unscathed. What it looks like: Lifestyle unchanged during recession. |
| 3 | You didn’t have holding power, and were forced to let go of investments at a loss. You lose money from recession.
What it looks like: You got ‘burnt’ on the stock market. |
| 4 | You didn’t have holding power. Forced to liquidate your assets or downgrade your life. What it looks like: Recession badly affects your life – after losing your job, you were forced to sell many prized possessions just to get by. |
How can my savings last two years?
Remember when we nagged you to have six months of income before you started invest?
This is exactly why.
If you spent 50% of your salary as expenses, six months of income could be stretched out to a year. Not too shabby. That’s 365 days before you have to lose money. Pretty good.
But if you spent 20% of your salary, then this amount will last you, far, far, longer.
If you cycled to work instead of getting a car, your holding power would be further extended.
If you had an affordable wedding instead of an expensive one, you’d have less debt to deal with.
If you’re used to one big holiday a year instead of many small ones, then skipping one this year will be painless.
If you had bought a house that was within your affordability, you’d be able to easily hang on to it.
Do you see where I’m getting at?
These are all topics we’ve all written about before – being a Woke Salaryman prepares you for recession. It demands sacrifices of you during peacetime, so when a recession comes, you can easily weather the storm.
The naysayers who questioned your prudent habits? The ones who said money isn’t important? The ones who wanted to YOLO and spend beyond their means?
They’ll be shaking at the prospect of a long recession and losing their jobs.
Look, if a recession doesn’t come this year, then great; everyone will have more time to prepare. You might even save some of your friends from misery.
But if it does, relax.
This is what you’ve been waiting for.
This is your time to shine.
Stay woke, salaryman.
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This topic on “Holding power is the most underrated aspect of investing and life” was well written and the author made it so easy to understand. Wanting to repost it on my Facebook till I saw the ‘F’ word. Would appreciate if it could be replaced with other word.
Agreed. Totally unnecessary usage of the word. It conveys to me that the authors have something personal against inflation which in reality is so bad. Inflation is like fat, a little is good, too much is bad and we cannot survive if there is none of it. Without inflation, your salary will not increase at all, just look at wages in Japan. Without inflation, you will not spend your money because it increases in value over time while goods and services becomes cheaper over time, and your economy stagnates. I digress.
Agree with Clarisse.
Appreciate the input but we are not changing it and here’s why.
We don’t believe that the word itself is harmful. What harms is intent and context and while some words are misused more often for negativity than others, we think it’s okay to use it for emphasis, flavour and tone. Reexamining the use of the word in our article, we feel justified that we are not barbing the word with harmful intentions or context.
Thus we will stand on our editorial decision. Thank you though, we really do appreciate the input <3
Recessions are a good time to make further investments, though you might want to reconsider your thoughts on SP500.
The reason why it’s always been on an upward curve is due to inflation…. And also because bad companies get delisted. The same holds true for managed funds. Losers simply disappear so there is a confirmation bias.
Investments beat no investment most times, but it’s important to know about the risks of each too.
Good articles, keep them up