Forum Mailbag: Preparing For Bear Market, Feeling Poor, Remembering Past Financial Mistakes, And More!

There is so much great information on personal finance forums. I regularly participate on several message boards, including Bogleheads, White Coat Investor, and Rockstar Finance. Here are some of the discussions happening around the internet.

1. Rockstar Finance: Preparing For Bear Market

Question: JodyN is hearing conflicting advice in the personal finance community. Some investors recommend having money available to buy stocks when the next bear market occurs. Some of these same investors recommend being fully invested because you don’t want to have money sitting around earning 0.01% interest.

WSP’s Take: The stock market is full of contradictory advice (e.g. buy low and sell high, but don’t catch a falling knife). In this case, I disagree with the advice that you should have some money to “keep your powder dry” or to have money available to take advantage of “opportunities.” The opportunity cost of holding cash is too great to justify keeping it in a checking account while waiting for “opportunities.”

Hopefully, you’re saving a decent percentage of your income each month, and that money should be going into the stock market. So when the stock market falls, you will be able to buy as the market is dropping.

2. Reddit: Feeling Poor Even As You Get Richer

Question: Jtwy feels frustrated that no matter how much his net worth increases, he still feels poor. As he continues to increase his net worth, he feels like he is always sacrificing in order to achieve financial independence. For example, when his TV breaks, he chooses to replace it with a used TV, as opposed to a shiny new TV his friends would purchase. As a result, he feels like he’s living a poor person’s life despite having a net worth that is growing.

WSP’s Take: It’s important to strike the right balance between frugality and deprivation. You shouldn’t live your life in misery, but you shouldn’t spend all of your money either. In personal finance, as in the rest of life, the trick is to be frugal in moderation, enjoying the journey to financial independence rather than trying to race to it.

It’s kind of like dieting. You need to make small modifications that are sustainable. If you go on a crash diet, you will be miserable and will never be able to maintain the diet. Similarly, try to make financial changes that you will hardly notice, as opposed to depriving yourself of every single indulgence in life.

3. Bogleheads: Keeping Mementos Of Past Financial Mistakes?

Question: Delrinson purchased Sears stock several years ago for what he thought was a good value ($30). Unfortunately, the stock continued to fall, and is currently trading at $4.56. He continues to hold it just to remind him of the mistake he’s made. He was wondering whether anyone else has done anything similar.

WSP’s Take: While an interesting concept, I think there are better, non-monetary ways to remind yourself of your past mistakes. You could print out a screenshot of the loss you took on the Sears stock and tape it on your computer. You could write a personal letter to yourself that explains why you choose to buy the stock and how you felt when the stock market crashed. You can turn to it anytime you feel tempted to purchase an individual stock because it appears to be a bargain.

But leaving it in your portfolio is a mistake on several levels. First, there’s always a chance the stock could go back up. The original poster even mentioned that possibility in his post. It’s important that when you make a mistake, you fully own it. In this case, you do that by selling the stock and taking the loss. Second, these losses could be used for tax-loss harvesting. You could even immediately put it back in a broad-based stock index fund without running afoul of the wash sale rule.

4. White Coat Investor: Guaranteed 7% Return?

Question: Omnibee is a medical student who is currently paying 6-7% interest rates on her student loans. As she goes into residency, she is planning to go for Public Service Loan Forgiveness (PSLF), so she doesn’t plan to aggressively pay down her loans. She will pay the minimum payment until she can receive loan forgiveness. She is looking for an investment that can offer a guaranteed 7% return to help offset the interest she will be paying on the student loans.

WSP’s Take: Unfortunately, there are no currently available investments that guarantee a 7% return. Run away quickly from anyone that tells your otherwise. However, in the not too-distant past, you could get 4-5% returns on CDs and 30-year Treasury Rates have been as high as 14.5% in the 1980s, but that was in a different interest rate and inflation environment than we have now.

Your best bet to get returns higher than 7% is to invest in the stock market, which offers the highest expected returns. The return is hardly guaranteed, but the stock market has returned approximately 9.5% since 1928.

Wall Street Shares: 5 Articles To Read This Week

1. Physician on FIRE: Financial Independence With Kids: How Procreation Impacts FIRE — Kids aren’t cheap. PoF helps quantify how expensive they can be.
2. Foreign Born MD: Earning 500K+ Salary as an Internist — You can make good money as a primary care physician (hospitalist), but you’ll need to work some serious hours.
3. The Happy Philosopher: The Happy Philosopher Visits the ChooseFI Podcast — Listen how this radiologist went from being burned out and wanting to leave medicine to thriving in a part-time role.
4. My Curiosity Lab: The Joy Of Opting Out — Physicians are used to taking on as many obligations as they can handle, but learning to say no to people can be one of the best things for your well-being.
5. Chief Mom Officer: People Are Predictably Irrational – A Nobel Memorial Prize Winning Theory — Personal finance is a blend of psychology and math, and the Nobel committee recognizes a behavioral economist with its highest honor for the second time by giving its award this year to Richard Thaler.

What do you think? Do you agree or disagree with any of my responses? What’s your take on the topics in this week’s forum mailbag?