Investing During Market Downturns: Strategies and Considerations

Noah embraces a financial mutant mindset by considering investment increases during market downturns.

### Navigating Market Volatility: Should You Increase Investments?
* 📉 Noah inquires whether to increase investments during a down market, emphasizing the importance of **"time in the market"** over **"timing the market."**
* 💪 Embracing a financial mutant mindset allows investors to **capitalize on market dips** by saving more or increasing contributions, such as **raising a 401k percentage**.
* ⚖ However, it's crucial to adhere to the financial order of operations and avoid **dipping into emergency funds or compromising financial security** during downturns.
* 💰 Dollar-cost averaging is a recommended strategy for **managing volatility**, encouraging **consistent investment** regardless of market fluctuations.
* 📈 A bear market, defined as a **20% drop**, can prompt individuals to adjust their investment strategies, but caution is advised to avoid **emotional decision-making**.
* 🧠 Recency bias can skew perceptions of market stability, as **quick recoveries from past downturns** may lead to **overconfidence in the current market**.
* 🔍 Investors should remain vigilant, understanding that historical downturns, such as the **early 2000s tech crash**, remind us that markets can **take time to recover**.
* 🗂 Ultimately, a balanced investment plan that addresses **fear and greed** is essential for long-term success, ensuring preparedness for both **market highs and lows**.

[Music] all right we are going to talk about the markets next. Noah wants to know, should we increase our investments this month and take advantage of the down market? I know time in the market is better than timing the market, but this feels like a great sale. Oh man, is that a financial mutant or is that a financial mutant talk? Talk about how should think about um should we increase our investments this month. Now, I want to be very clear, we do have a saying here. We say that time in the market is more important than timing the market. Now, I though am not one who would say that accelerating investments or getting more in more opportunistic during downturns is timing. I think that is just someone who is exercising a financial mutant's mindset. If you can figure out man, okay market's down, volatility presented itself. I want to see man, can I save an extra $100? Can I save an extra, can I increase my 401k percentage from 10% to 11%? I love making those kinds of

decisions through bouts of volatility because you are a contrarian. You're doing the Warren Buffett thing of being fearful when others are greedy and specifically now being greedy when others are fearful. So should you increase it? I would say you can increase it so long as you're not running afoul of the financial order of operations. I man I hate cuz you're right you want hold the thing that's all right that's all right. I'm I'm always right if I give it if you want to go get your coffee go to moneyguy.com resources. You want to make sure that you're going through the financial order of operations. So long as you're doing that and you figured out that you can decrease expenses to increase your investment contributions. I love it. Here's what I don't love you doing. I don't love you going back into step four and I don't love you dipping into your emergency fin ooh. Market's down I'm going to go I've got my three months but I'm going to take down to one month and

I'm going to go do this 'cause what if it gets uglier? What if things get a little bit dicier? What if all of a sudden the economy slips into recession, and then your industry, your company, your job is not as secure or certain as it might have been six months ago? You just don't want to be too greedy or too risky. So, I think the answer to Noah's question is should we increase it or can we increase it? Absolutely, so long as you're not breaking the financial order. First of all, no, I love the financial mutant mindset. The definitely markets down lose 10%. Um, I want you to take that mental comfort of that one of the best tools for fighting volatility is a great dollar-cost averaging. So, always be buying, baby. I mean, it hooks you up, it protects you, it buys through all the volatility that's out there. But here's my personal belief on this. You have a falling knife, you never know where markets are, nobody knows in the short term, we don't know the people on the

talking heads on TV, they don't know either, and you don't know if this thing is. Have we had the worst of it? Because every year, if you look at intra-year in the investing, there's about a 14% change within just the S&P 500. So even in good years, yes, you'll see 14% of variation some point in the year. So it's not uncommon that you see a drop of 10% or so. But for me personally, to change my behavior, I need a bear market. Because I will tell you, I get very, even though I'm not a market timer, I do become very dynamic with my dollar-cost averaging. Once we cross into a bear market, which is a loss of 20% or greater. Here's the other thing, make sure, and Bo hit on this, and I thought it was perfect in the fact that I want you to make sure your plan reflects your life and your future goals. It does not give you an invitation to break the financial order of operations. If you take your emergency reserves

below the comfortable 3 to 6 months just so you feel like, Hey, by The Dip. If it doesn't tie into your plan and it even breaks your plan by ruining your emergency reserves, that's a no-go territory. I love it when, uh, I think it's Warren who says, When it's raining opportunity, reach for a wash tub, not a thimble. I think he says, he changes it every few years. He writes the same thing, but he uses thimbles one year, he uses buckets another year, or cups, but he has used that saying but just used different things to hold the water. So, if you are someone who does have, you know, if you do have the ability to either increase income so you can increase savings or decrease expenses so you can decrease savings, I don't think that's a crazy thing to do during a balance of volatility. But just like you said, you have to define what is volatility, and you said bear market, 20% downturn. I mean, I think the market's even up today, so who

knows if this volatility we're seeing right now is here to stay or not, but I love Noah's Financial mutant mindset. Rey, anybody got any questions dealing with, they're just, they're emotionally scared about the markets. Do you see any of those, or are my, are people just such Financial mut, they're seeing a lot of that. No, I don't really see that today. Great. I mean, they might still come in if you have that. We would be happy to talk about that. We haven't seen it from C either. Question about the market, and it is, it is true markets are still up over 8% year to date. So even with this pullback we've had in the last week. So I was just curious if people had some, some Behavioral or emotional fears. Well, you know, we, as we, as humans, we, we always suffer from recency bias. When I think it's so interesting because I feel like we've been conditioned over the past couple years. What, go with me on this journey. Fourth quarter of 2018 Market

dropped really, really fast. It was 20% down really fast, but then it came back super, super quick, right? So, fourth quarter 2018, the market dropped and came back. You pull that rubber band down, the further it goes down, the further it goes back up faster. Volatility, we had all those words, no, we had the pandemic, we had COVID in 2020, same thing, rapid descent followed by a rapid ascent, came right back up. 2022 was a really unique one. It was one where there was like this longer drawn-out period. I believe people actually got much more nervous during that when it was like a 12-month downturn than they do through this quick, fast bouts of volatility, just because I think we've seen them so often, we've seen them so much recently. Okay, drops 14% intrayear, 20% bear market, but then comes back. If you are someone out there who's trying to time that, or if you're someone who's susceptible to letting your emotions get the best of you, by the time you make an

adjustment. By the time you change something in your portfolio, it may already be too late. So, I think you just have to be really, really careful about that. Well, and I know this is not part of a question, but it is one of those things with the recency bias, is that since we've had such fast recoveries, a lot of people have forgotten that in the early 2000s, during the .com technology stocks, got crushed in 2000, and then they got beat up again in 2001, and then they got crushed all the way down to November, October, November of 2002. And you saw that the NASDAQ and all those tech stocks basically take years to recover. And we've been in such a period where technology has just been dominating, dominating, that I think people feel like, Hey, it's safe because I haven't seen it lose a lot of money. Make sure you go into all investing with your eyes completely open. Have a reason, balance out that fear and greed component, because I think a lot of times people

When markets make lots of money very quickly, they get all just drunk off of the excitement of watching how much money they could make, and they go loaded up on those tech stocks. When they have volatility, there have been periods. So that's why, and I don't want you to go on the other side of it when these things start dropping. Like when you see the NASDAQ lose like 6% at the opening, that punches you in the gut a little bit. You're like, What's going on here? It just be careful. Balance is having a plan that's good before, during, and after is the secret to success. I love that.

Is Now the Perfect Time to Invest More in a Down Market?

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Increasing Investments During a Down Market

Increasing investments during a market downturn can be a smart move, as it reflects a contrarian mindset.

It's important to assess your financial situation and ensure you're not disrupting your financial order of operations.

Decreasing expenses to boost investment contributions is a good strategy, but dipping into your emergency fund is not advisable.

The speaker emphasizes the importance of not being too greedy or risky in uncertain economic times.

They advocate for dollar-cost averaging as a strategy to combat market volatility and suggest that a bear market can be a catalyst for changing investment behavior.

The speaker also highlights the need for a financial plan that aligns with personal life and future goals, without breaking the financial order of operations.

It's important to maintain emergency reserves and not let opportunities disrupt your financial plan.

Increasing income or decreasing expenses can be a viable strategy during volatile times.

Despite recent market pullbacks, the market is still up over 8% year to date, and emotional fears about the market's volatility are common due to recency bias.

The market has experienced rapid drops and quick recoveries multiple times, including during the fourth quarter of 2018 and the COVID-19 pandemic in 2020.

2022 was unique with a longer, drawn-out downturn, causing more nervousness among investors.

The speaker warns against trying to time the market and emphasizes the importance of approaching investing with a balanced perspective, considering both fear and greed.

Markets can become overly excited and invest heavily in tech stocks during periods of quick financial gain.

Volatility, such as a significant drop in the NASDAQ, can be jarring and cause concern.

Having a balanced plan in place before, during, and after market fluctuations is key to achieving success.