In February 2020, the Dow Jones Industrial Average was at 29,568 – its all time-high. Then, just a over a month later, the rise of the pandemic caused the stock market to tumble…all the way down to 18,213. It was a drop of over 38%, which is simply unheard of…especially within that short period of time. My message after the drop was buy, buy, buy!!!! I’m glad I did (and I hope you did too), because now, just a couple of months after the stock market bottomed out, it’s nearly back to its previous highs. But now what? The stock market is high again. Should you continue to invest?
Below is the plan for me and my family as well as additional options that might suit you better right now. Take a look and choose the investment option that’s right for you!
The Investment Plan For Me and My Family
Liz and I are frugal to the bone. Ever since we met, we’ve been saving 50% or more of our income toward something…
- First, we saved for an investment property
- Then, it was buying a flip house
- Next, it was saving up to buy our “forever” house (there’s really no such thing, but it is our “long-term” house)
- Then, kids came along and we saved for college (Free College Investment Calculator – It Costs More Than You Think)
And as of 6 months ago, we decided we’d saved up enough for college and it was time to start saving aggressively for private schooling. So, we opened up a Vanguard investment account and started stashing away cash into a low cost index fund.
About 3 months later…the bottom dropped out of the market.
So what did we do? Pull it all out?
Of course not!
We doubled down and started loading money in there like crazy! After all, the market wasn’t just on sale, it was on clearance! We’re talking 38% off here!
From March 20 to May 31st, we were able to put an additional $15k into the S&P 500 index fund. Already, those investments have bumped up to over $17k, which is great. But, now the stock market is high again – only 5-10% off its all-time highs before the crash…
So what’s our plan now?
The Stock Market is High Again…Here’s What We’re Doing About It
Yeah, it’s a bummer.
First of all, I wish I would have loaded all $15k into the market on March 20th instead of dollar-cost averaging my way in. (But, hindsight is always 20/20 right?…And better safe than sorry!).
Second, I wish the market would have stayed down longer to give me the chance at loading thousands of more dollars in. Unfortunately, I have no control over this (the Fed does! Lol!).
But you know what? This is where we’re at and I just have to make the best of things from here.
So what’s our plan?
Honestly, it really hasn’t changed much from a few months ago.
- The stock market is still below its previous highs, so technically it’s still at a discount (which means buy).
- Also, with all of the stimulus bills and the initial turn-around of the economy, I get the sense that the market will just continue to roar – perhaps all the way up to 40,000 on the Dow in just a few short years (again, this means buy).
- Finally, our investments are for the long term (15-ish years), so the chances of the market staying flat or down over a 15-year stretch is basically zero. And this, of course, means we should continue to invest.
Oh, and….since our last flip house put such a strain on our marriage, I’m not about to buy a cheap property to fix up again — maybe later in life, but not now while our kiddos are young.
Then, we’ll probably blow a wad of cash on fun the next year (we HAVE to celebrate having a paid-for house, funded college, AND funded private schooling!!).
And, after that, we’ll…
- continue to put money into our retirement accounts,
- save up to invest in more rental properties, and
- stash a bit into non-retirement index funds in case I decide to retire early someday.
That’s the plan and we’re sticking with it!!
The Stock Market is High – What Should YOU Do With YOUR Money??
Nobody is ever in exactly the same financial situation, so I can’t expect that my choice for our finances is right for you and your finances at this current moment. It all depends on where you are with your money and your life.
So, here’s what I would do if I were you in the financial situations below:
1) You’re Still in Consumer Debt
There’s no guarantee of a return in the stock market, but there is absolutely a guarantee of “earning” money when you pay off your debt and avoid paying all that interest!
For me, if I was in consumer debt, I’d probably only invest if there was a match at work and no more beyond that.
Instead, put all your efforts into paying off your debt (Oh, and use this free debt snowball tool to do it!).
2) You’re Out of Consumer Debt But Still Don’t Have Much Excess Cash
If you’re not investing in something, you’re actually losing money. The average inflation rate is 3.22%, which means that the power of $100 this year is only worth $97 next year, and then $94 the year after that. In other words, everything around us is getting more expensive, and if you have cash that’s earning nothing, you’re actually going backwards.
It’s time to invest… Your future depends on it.
- Cut your cable (or YouTube TV/Netflix/Prime – they count here too!)
- Stop going out to eat so much
- Do you really need two cars that cost you money in gas, insurance, maintenance, and depreciation?
- Maybe you own too much house? Is it time to downsize or move out of that expensive area?
Write down all your expenses. I’m sure you can find something to reduce or cut. Even if you can only invest $100 a month, it’s far better than investing nothing in the long-run.
3) You’re Out of Consumer Debt, Have Cash, But Are Nervous About the Stock Market
I get it. The stock market basically did nothing from 2000 to 2010, then it doubled, then it dropped nearly 40%. What kind of crazy investment is this anyway?
You know what? Maybe the stock market isn’t for you, but per the detail I noted in point #2 above, you’ve still got to invest in something, otherwise you’re losing money with each passing day.
So What Are Your Other Investment Options?
- Real Estate – There are deals to be had in real estate right now. I recommend buying with cash, fixing them up with a budget, and managing rental properties yourself. That’s what we did and we’ve turned $90k into $200k in just 4 years!
- 3% Checking with a Credit Union – Yes, you can earn 3% on a simple checking account with some credit unions. We earn an extra $450 a year this way!
- High-Yield Savings Account – It’s not a ton of earnings, but it’s better than nothing! Look into high-yield savings and earn 1.5%-2% a year!
- Invest in Your House – In the past, I’ve told you that your house is a terrible investment, but if you can DIY a bit of an upgrade or find an inexpensive crew to do it for you, then you could add this option to your list. Not only will you get to enjoy the upgrade, but it will add value to your home in the long-term.
- Invest in Your Future – It’s never a bad idea to invest in yourself today for years of increased income in the future. My MBA cost roughly $18k and my salary has increased by $30k a year since then. I’d say the schooling was worth it!
- Collectibles – Do you know all about classic cars? Coins? Stamps? Old toys? Whatever it is, if you know the value of stuff and can find deals all over town, then go for it. It’s not conventional, but it works for quite a few people. The key though…is that you need to sell it at some point to actually realize the profit. 😉
- Start/Buy a Business – It doesn’t have to be fancy to be a great investment. You might really like to mow grass and you want to buy a trailer and a mower to get your business started. If you can find the clients and you can earn a healthy profit, then do it! Or, if you’d rather your business be turn-key, buy the mower, trailer, and clients from someone that already has their business rolling!
- Become and Angel Investor/Venture Capitalist – Want to invest in someone else’s idea and profit from it (think Shark Tank)? You can by becoming an angel investor. Either you can join a group of other angel investors or start sniffing out entrepreneurs on your own. It can be a very satisfying and lucrative business!
- Invest in Land – Finally, the most basic of investments – buying a plot of dirt. This could be farmland or a simple field. But, it’s an area of land that you think will appreciate in value substantially. Either it’s just on the outskirts of a growing city or there’s big business coming into the area. The point is, there’s only so much land and it will likely appreciate in value.
The Stock Market is High Again – What Will You Do?
So, you’ve read about what my family intends to do now that the stock market is back near its all-time highs. And, you’ve read about what I would do if I were:
- still in consumer debt,
- out of debt, but cash poor, and
- out of debt, but leery about the stock market.
Now, what is your choice? Will you continue to invest in equities even though the stock market is high again? Or, do you have other plans?
I’d love to hear about your investments plans below! Leave a comment (or two)!! 🙂
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.