Santa Brought A Bad Present
It is said that Christmas is the most wonderful time of year and you know, I would have to agree. It is easily my favorite holiday. Waking on Christmas morning to find presents under the tree has always been a magical moment. But for me, the anticipation of Christmas morning is equally as exciting. The journey is as exciting as the reward.
When I was a child my mother would allow us to open one gift on Christmas eve, usually something small hand selected by her. As my siblings and I grew older, a debate was waged every Christmas eve, trying to persuade my mother to allow us to open all of our presents the night before Christmas.
The reasons given were many, the most common excuse, which played to my mother’s sensibility, was that it was for her own good. She would not have to get up before dawn to watch us open presents.
As you can guess I was the one dissenter among my siblings. I always wanted to wait. To delay the opening of presents until morning afforded me 12 more hours of anticipation and usually a restless night’s sleep.
The anticipation and wondering of what I will find come Christmas morning is part of the present.
Speaking of presents. The stock market has given us somewhat of an unwanted present this winter. A bear market.
Santa Brought A Bear Market
December 24th, 2018, marks the worst Christmas Eve trading day ever, with the S&P 500 falling 2.71% and entering a bear market. The nearly decade-long bull market is dead.
By definition, a bear market is a 20% decline from record highs and on Christmas eve trading day that threshold was crossed. All year the stock market has been cruising along, with nearly a 9 percent gain for the year, until November came along. In the past two months, the market has cratered and yesterday we entered an official bear market.
Aside from the 20% downturn, bear markets are also marked by general pessimism and fear. This reminds of a famous Warren Buffett saying,
“Be fearful when others are greedy and greedy when others are fearful.”
According to Goldman Sachs, bear markets take 22 months on average to recover from. If you have a long investment horizon, it could be a great opportunity.
Back in June, I wrote an article called Are You Scared Of Bears: 4 Steps To Bear-Proof Your Portfolio. Those 4 steps are as relevant today as they were six months ago. If the falling stock market has got you frazzled, be sure to read my article to put your mind at ease.
4 Things Are Spooking The Market
- Federal Reserve has indicated they plan to continue raising interest rates in 2019.
- A trade war with China drags on
- Fears of a global economic slowdown
- Political risk (think congress and president)
What does this mean for the average hard working American who contributes to a 401(k)? Not much, really. Markets will go up and markets will go down, but the undeniable trend over the last 100 years is up and to the right. If you have more than 10 years before you plan to retire, you need to trust that this will pass.
I could spend time worrying about the government shutdown or the likely debt ceiling fight early in 2019, but I realize, these variables are out of my control. By focusing on my income and my savings rate in 2019, I plan to not only outlast any market downturn but profit from it.
Looking forward to January
The day after Christmas is a buzz kill. The excitement of Christmas morning is replaced by the practicality of life. As an adult, that means it’s time to take down the decorations, stuff the recycle bin with all of the recyclable present packaging and head back to work. All of the fun in December leads to credit card statements that start rolling in come January.
The mental hack I use to overcome post-Christmas gloom is giving myself something to look forward to. I find that when I am working towards a goal my life has more purpose and purpose makes me a happier person.
To give January some purpose, I am giving our family a challenge. We are calling it Thrifty-Vegan January. The challenge is two-fold:
First I am going Vegan (for one month) to dip my toes into the world of a plant-based diet. My wife has been vegan for much of the past year and incidentally we have cut way down on our meat consumption. This should have made graduating to full Vegan easier but I’m not convinced. Dairy will be my hang up. I like eggs and what is a late night bowl of cereal without milk. I have never really found the various kinds of nut milk to be a suitable replacement for real milk. In spite of my trepidation, I think I can handle Veganism for one month and this should present a fun challenge.
Second, the thrifty portion of the challenge is to cut back on January expenses to pay for Christmas. Much of our holiday season spending was done on an air miles credit card to earn points for upcoming travel. To meet the minimum spend, we pushed much of our expenses onto one credit card which now has a burgeoning balance.
In January we plan to make some concessions. No eating out and no coffee shops. When our family needs to free up some cash flow, this is usually the first place we look, discretionary spending. With these two cuts, we will save $300-$400.
We also plan to have 10 no-spend days. The concept is simple, go 24 hours without spending money. I first heard about this idea from Angela at Tread Lightly Retire Early.
We have a bad habit of going to the store for milk and spending $30. By reducing trips to the store on no spend days we will eliminate impulse purchases. I’m not sure how much this will save but it could be substantial.
403b and IRA*
Another reason to look forward to January is that our family can start contributing to 2019 IRA’s and our 403(b)’s. Our contributions to our IRA’s are done bi-weekly on every payday. I have gone to a bi-weekly contribution to help lessen the sting of the money being removed from our checking account. I have it timed so that our paycheck hits our checking account and the IRA debits the same morning. It is the closest I can get to payroll deduction and helps us feel like we never had the money to spend.
Our employer (my wife and I work for the same company) does not penalize us for front-loading contributions to the front half of the year. By maxing out our 403(b) earlier in the year, we free up cash flow for the back end of the year for a vacation and holiday spending.
In the past couple of years, this has become a game for me to see how quickly I can max out my 403(b). Last year was a record and I wrote this article How I Maxed Out My 403(b) In 6 Months if you would like to read more.
*Take Note: 2019 Contribution limits for IRA’s have increased to $6,000 per individual. 401(k) and 403(b) limits have increased to $19,000 per individual.
A Smart Fi Merry Christmas
I just want to say thank you for reading my blog and wish each and every one of you a Merry Christmas. If you have topics you would like me to cover in the future, don’t hesitate to shoot me an email email@example.com. I read every email and would love feedback or suggestions.
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