This bears repeating.*
If you're asking "how are you preparing for a recession," (1) it's too late, and (2) you don't—either your system is well designed and accommodates this, or it doesn't (echoing what others have said).
*no pun intended, but probably should have been
I have decided to put every penny that I don't need for another 10 years into a handful of accumulating ETFs (and 3 stocks I personally believe in), every single week, for at least the next 12 months and, if possible (i.e., for as long as I have surplus money), for the whole next 10 years.
If this time is anything like 2000 or 2008 was, then I will be buying relatively cheap for the first part of these 10 years, and will see a solid return in the second part. How long the first part and the second part will be, this I don't know.
My bet is that after 10 years, this won't have mattered that much.
Would love to hear what HN thinks about this.
Many people think this approach is not exciting, but you can see what the past week has brought for people who think like that.
Some more details. This is my most risky investment approach, by design. I only put in money that I'm sure I won't need for at least another ten years. Not that it wouldn't really badly suck, at least psychologically, if I'd loose all that money (I'm not rich or anything), but I don't need it to "survive".
"Don't need" means that it is the money that remains after all my expenses, and after keeping my emergency fund in good shape (which is currently good for at least 6 months of emergency).
Also, this is not my retirement portfolio. It's a bet to multiply money I can risk.
For actual "at least I'm not going to end up poor" retirement stuff, I'm paying into the German state pension, "Riester" and other non-state pension products, and by holding real estate.
ETFs are tracking MSCI World, DAX Performance, EURO STOXX 50, MSCI USA, STOXX Europe 600 Personal & Household Goods, FTSE China 50, Healthcare Innovation.
A small part goes into Gas & Oil ETFs and FTSE MIB.
To be perfectly honest, I think there's a high enough chance that this will happen (although still a low chance) that I have to take it into account in my emergency plans.
I say this because it's been over 10 years now since the last recession and a lot of folks under 30 haven't experienced one since they've been out on their own. They haven't experienced a prolonged bear market. Folks over 40 can remember the tech wreck (2001-2003ish) the housing bubble implosion (2008-2012ish). Folks over about 55 can recall how bad the late 70s, early 80s were.
And then there's just stuff that's not related to the economy. Life happens. Emergency appendectomies. A family member gets diagnosed with cancer. You burn out on your profession. The longer you live the more of this kind of stuff you've experienced.
Something like the golden butterfly with a cash component, would allow you to spend the cash first. Then you could choose if you want to deplete an asset that hasn't plummeted, or withdraw from each category equally.
https://portfoliocharts.com/portfolio/golden-butterfly/
You could also use something like a Line of Credit against your stock. Both Schwab and M1 offer it. That way you can spend in an emergency, and hopefully your growth rate offsets the interest rate.
https://www.schwab.com/public/schwab/banking_lending/pledged...
https://www.m1finance.com/articles-1/portfolio-line-of-credi...
"With M1 Borrow, you can borrow up to 35% of your invested portfolio at a 3.50% interest rate instantly (2.75% if you are using M1 Plus). There's never been such a low cost, convenient, and flexible way to borrow money."
As for volatility of the market I accommodate for that by having well over twice as much as I need in investments that I can liquidate.
The end result if I project using historical data is that I'm much wealthier.
If the market crashes to the point people aren't buying S&P500 index funds I highly doubt people with money in the bank are going to be in any better of a position than myself.
If it continues on trend, I'll stand to do better than them though.
The actual ways to use cash are to find high-yield savings accounts (over the past few years some online accounts have hit 2.5-3%, though that's not common), CDs (which again you've had to go with online-only accounts to get decent returns), or some forms of bonds. These offer guaranteed returns (or at least guaranteed not to lose you anything) which is exactly what you want for your e-fund.
Absolutely invest the rest and reap the rewards (or losses, but over a couple decades should be rewards). But it's a good idea to leave the e-fund in a more stable form. Don't be like my colleague in 2008/2009 who went from being worth almost a million to being worth 200k and needing the money. He couldn't let it sit and recoup value, he just lost. His retirement was pushed out years as a result.
Admittedly, his retirement still would've been pushed 1-3 years anyways due to the financial need at the time. But he used almost half his investment's value at that point ($100k), which in a few years would've been back to $500k or so in value. If he'd even had $50k in cash (less than his annual net income), he would've only lost a quarter of his investments instead of half.
It's an emergency fund - likely not much. Maybe a few grand at most in that amount of time?
> and needing the money.
Unless the market cuts in half over-night I'll have the money. That's why I have twice as much as I need in that bucket.
I've not really heard any compelling reason why I should move to a savings account. Yeah I might make more if the market takes an unprecedented long term decline, but realistically I'll make well over twice as much returns as I would that savings account.
If your money had been in the market, it would have gone up and then down. You might end up with more money in the end than if you had never invested.
I never said otherwise and you should retract your accusation of dishonesty.
> You might end up with more money in the end than if you had never invested.
My reading of your comment was perhaps too harsh, but your statement implied to my initial reading as if the parent said they never invested. Which is not at all what they said, but rather that they kept cash in the bank and a separate amount invested. The cash is to avoid the risks of market timing (you can't do it, basically). People are getting lucky that right now they're still ahead on their investments. But there's no guarantee that will remain true over the next month or two when the money is actually needed.
And if you look at the S&P and Dow, the past 2 years are basically all lost if you had to sell right now. There was a dip in early 2019, but most of the past two years were above today's prices for both indexes. So you can plan on being lucky, or you can set aside a relatively small amount and actually plan.
When you say cash it's money in the bank or bills under the mattress ? (I'm not an American)
this is bad market-timing.
S&P 500 lost 20% in the past month, but it up compared to a year ago, up 50% since 5 years ago. You lost a bundle compared to being in the stock market and selling it all now after a sudden 20% loss.
I’ve missed out on some money by not having that in the market, but during this time I’ve also been working and investing my income so like... I’ve still made money?
Why the greed, man? I can keep a bulk of money for retirement, long term planning, et al. in the market _AND_ keep a small amount of funds wholly liquid in case shit hits the fan without seriously impacting my quality of life.
Beyond that, I tend to live by this maxim: "When times are good prepare for them to be bad. When times are bad prepare for them to be good."
So the question to ask soon is how will you prepare for the post-recession recovery? Asking this will keep you from despairing. Yes, this recession could last a while and be quite nasty, but it won't last forever.