Finally, a Stock Market Crash!


Well, that was kinda sudden!

In the three months or so since we last spoke, the world has become an entirely different place – at least for those of us who keep up with any sort of international, financial or stock market news. 

The headlines are new, and the problems are of course very real. Russia has started one of the biggest, shittiest wars in a generation – killing untold thousands of people, displacing millions, and halting trillions of dollars of production and trade. This has compounded the “everything shortage” of broken supply chains that we have all been feeling for the past two years, creating even more inflation especially in oil prices. And just to amplify everything even further, China has launched a batshit crazy (and medically impossible) “zero covid” policy, locking down hundreds of millions of its own people who can no longer produce or export the things that the rest of the world’s economy had grown to rely upon.

The resulting shortage of goods and workers has created rising prices (inflation), which has triggered our central bankers to finally rise from their slumber and start jacking up interest rates.

Slamming on the Brakes: Mortgage rates have almost doubled in just nine months.

Which has in turn triggered the more skittish stock investors to run for the exits and completely change their view of our economic future, flooding the financial news with red ink and scary headlines.

The bottom line is that the overall US stock market is down about 20% over the past three months. Which means that if you add up your net worth as I do occasionally, you may find that almost a fifth of it has suddenly gone up in smoke. 

Fortunately, this is just an illusion. While the human side of every war is awful and you should help out if you can, the financial side of this panic is very normal and we were overdue for something like this to happen.

A 20% drop in stock prices is called a “bear market” and they traditionally happen every few years, lasting just 9 months or so from top to bottom. But in the Mustachian Era (the years since 2011 when I started writing this blog), there has only been one: the 2020 Covid Crash which only lasted about a month. Heck, even in my 25 year investing lifetime (roughly 1997 to present), there have only been a handful:

Bear market dateDecline (peak to trough)Duration (months)
March 2000 – Sept 2001 (dotcom bust)-36%18
Jan – October 2002 (more dotcom+housing)-34%9
Oct 2007-Nov 2008 (great financial crisis)-52%14
Jan – Mar 2009 (more GFC)-28%2
Feb-March 2020 (covid crash)-34%1
April 2022 – ??? (the current blowup)-20% so farWhat’s your guess?
Data source: S&P market data


So if you’re under 40, some of this may feel unfamiliar.

Now that we’ve covered the background, we can get into some better news:

  • This is all a normal, healthy part of the economic cycle. In fact, our central bankers have deliberately created this situation for your own good and they probably should have done it a year ago.
  • If you are still buying or holding shares (as opposed to actively selling them), this stock market crash is actually making you richer
  • Even if you are retired and living entirely off of your investments, stock market declines are to be expected and should not derail your life of leisure – as long as you are following a rough approximation of the 4% rule and remain flexible and understand the concept of a Safety Margin.

If you really understand the points above and really feel excited about them, you can drop the fear and stress out of your investing life, which means you will live a life that is both wealthier, and more fun. So let’s cover each point properly, so you can be excited about all this as I am.

1) Why is this healthy again?

First, the part about the Federal Reserve and why a central banking system is so useful (despite the claims of financial anarchists like Bitcoin lovers):

When something bad happens (like the sudden deliberate recession we caused due to our own 2020 Covid shutdowns), the Fed can drop interest rates and “print money” in other ways to boost investment and demand in the economy. And it works – this is why our economy bounced back so quickly from the largest slowdown in history.

Some might say it worked too well – while we have benefited from record low unemployment, we have also seen prices of houses, stocks, and everything else rise with alarming speed. So eventually, they had to turn off the booster.

By raising interest rates, the central bankers put a slight drag on business spending, consumer borrowing and stock market exuberance. This lowers demand for everything, which pours some cold water on inflation. The deflating of the most overpriced stocks shows that the policy is working. And over the next year, higher mortgage rates should also end the crazy bidding war of a housing market we’ve been seeing in most cities.

But stock market crashes and even brief recessions are good for more than just fighting inflation. They’re good for fighting a persistent flaw in human nature itself.

Humans are lazy creatures at heart. When things get too easy, we lose our edge and our motivation to learn, innovate and make changes. It happens at the individual level, as I notice when I waste certain evenings on the couch accomplishing nothing. And it happens even more in the collective sense, if a group of people secures a nice stream of power and profit that remains unchallenged.

Imagine that you’re running a company. Your customers keep buying your stuff no matter what you do, investors bid your stock price up to the moon regardless of your financial performance, and there is no competition on the horizon. What do you think will happen to your monopoly?

There’s no need to speculate on this, because it has happened to varying degrees since the beginning of economic time. The answer is that you start to suck. Your product innovation stagnates, your customers grow less and less happy, and your investors grow nervous. Eventually, something comes along to poke at this bubble of complacency – in this case war and covid and inflation – and then POP! – your sales dry up, your stock price crashes, and your cozy corporate desk has turned into a tattered lawn chair in the parking lot and your business is done.

But wait! While you were adding that final layer of lipstick to your obsolete film camera or manual typewriter or gasoline-powered line of cars and trucks, there actually were competitors out there, inventing better products and offering better customer service and keeping their balance sheets lean, because they had to, because things for them were hard

Your inefficient company goes out of business, and your more nimble competitors welcome your former customers. They may even suck up the best of your former employees and buy your old factory to start making new, better products.

This happens all the time, and while it can be painful for those who weren’t prepared, it’s a healthy thing for business overall. And a healthy thing for overpriced housing markets, and the speculatively inflated prices of oil, lumber, copper and everything else.

To a certain extent, the high prices were useful in sending a signal that we need to produce more of these things. But beyond that limit, people started buying overpriced stocks, houses, cryptocoins and commodities simply because they hoped to make a quick buck by flipping them to someone else at a higher price. Instead of investing in a productive asset, these speculators were just assuming the recent momentum would continue. This type of gambling is a waste of everyone’s time, and a good price crash is the way we flush the financial toilet.

2) My net worth has just cratered by 20%. How exactly does this mean I am getting richer?

Results of a recent Twitter poll – Mustachians are well ahead of average Americans, of whom only about 18% consider this a buying opportunity (!)

The first thing to ask yourself is, “20% of what?” 

Sure, stock prices are down from a recent peak, but that peak itself was just an arbitrary fleeting moment of investor enthusiasm. Was that previous price really the “right” value for stocks, or did you just grow attached to it because of our known human weakness of Loss Aversion?

To put it another way, what if instead of looking at our investments as the financial media likes to portray them, which is like this:

Financial media: “Aaack, scary red line just dropped to ZERO!!!”

What if we decided to be more sensible, start the damned Y axis at zero as every graph should do, and zoom out to a reasonable time horizon,such as the Age of Mustachianism which happened to begin in 2011. And ignore the wiggly blue line and follow the more meaningful red line.

More accurate representation: “Whoa, stocks are a great long-term investment!”

Well, how interesting. Not only has this crash returned us to a roughly straight line of longer term stock market growth, but that line itself is very generous, representing a 12.8% annual compound gain if you factor in a quarterly reinvestment of dividends (which typically add about 2% to your annual returns but aren’t shown in these charts). Over longer periods like 50 years, stock returns have been closer to 10% after dividends, which means we’ve still had more than our share of good times. 

In the long return, stock prices are determined by this formula:

Stock price = company earnings x BRM*

*(Bullshit Random Multiplier)

The BRM, more formally known as the Price-to-Earnings ratio or P/E, is supposed to be based on a mathematical estimate of the present value of all future dividends you will receive if you hold a stock for the entire life of the company.

 When we expect higher interest rates or inflation over the next 20 years, the P/E should fall because those distant future earnings become worth less in today’s dollars. Meanwhile, if we somehow realize that the long-term future of the business world is even more rosy than we thought, the P/E should rise because investors can accurately predict a larger stream of future earnings.

But the “bullshit” factor comes in due to things like the “He Said She Said” nature of whatever Elon posted on Twitter today, momentum trading algorithms, meme stock traders banding together to drive up random stocks regardless of underlying value, and more. In short, the short term BRM is just a measure of the present moment’s balance of greed and fear.

As an investor, however, you don’t care about the BRM. In fact, you don’t even really care about the share prices of your investments, because the price of an individual share only matters twice in your lifetime:

  • The moment you buy it, 
  • And the moment you sell it. 

Everything else is just silly noise.

Right now, most of us are still earning money and accumulating more shares. Even Mr. Money Mustache, as a person who retired 17 years ago, is still in this boat for the simple reason that my retirement income from dividends and hobby businesses is still greater than my annual living expenses (which still hover around $20,000 per year).

On top of this, if you are holding mostly index funds as you should be, your stocks deliver a nice helping of dividends every three months, which you have set to automatically reinvest into still more shares of those same index funds. In today’s market, you are getting about 25% more shares for each dollar that you invest. Which translates to a full 25% more wealth from those shares in your future. 

(It’s fun math – a 20% drop in prices means you get 25% more shares for your dollar, and a 50% drop means twice as many, or 100% more shares per dollar invested.)

3) Okay, but I really am retired and trying to live off my investments now. How is this not a disaster for me?

First of all, you’re still getting the dividends that we celebrated in point 2) above. When the stock market crashes, dividend payments usually remain far more stable because the big, established companies in your index funds continue to make money. 

It’s quite similar to owning a portfolio of rental houses spread throughout the world: while house prices fluctuate all the time in different cities, the total rent paid by a group of thousands of tenants will tend to remain pretty stable and just rise at the rate of inflation.

So this stream of money will keep coming in and covering a substantial portion of your living expenses (between 30% and 50% for most retirees in today’s market conditions if you retired using the 4% rule). 

Even if you don’t adjust your spending or income during this bear market, the end result is that you simply need to sell a tiny percentage of your shares at a discount during the bear market – which means your portfolio shrinks a bit faster. 

But the 4% rule already takes this into account: if there were no such thing as bear markets, the safe withdrawal rate would actually be equal to the long-term average of stock market growth, which is closer to 7% after inflation. By sticking to 4% or slightly less, you are giving yourself a high chance of weathering the storm.

cFireSim: Economic History to the Rescue!

What if I “retired” at age 47 on $1 million, hoping to spend $40k (rising with inflation) for the next 50 years?
Assuming a small $1k boost from social security in my 60s, I’d have a 95% historical success rate. Only the Great Depression and the 1960s slump would have foiled this plan, and even then just barely.

To really understand what this means I reached out to Lauren Boland, the financial calculations wizard behind the amazing cFireSim retirement simulator. Her long-running site gives you the best shot at answering the question: “If I retire with a fixed chunk of money, what are my chances of success?” 

I asked her what it really means when the stock market drops: does a 20% drop really make you 20% less “retired” or is actual outcome more subtle? True to form, she got back to me within just a few minutes with these thoughts:

MMM: How should potential retirees think of the recent crash in valuation – has it really pushed out their retirement date, or not? 


It depends on how flexible you are willing to be with your spending. As stocks get more expensive (a higher price-to-earnings ratio), it can be a perfect time to spend more (take those gains), and when they drop in value (like right now), you may want to spend less to preserve your capital. 

We have a name for the this idea of stock crashes that come at just the wrong time: the Sequence of Returns Risk. If you retire just BEFORE a big stock market crash, your first few months or years will drain your portfolio a bit more than you expected, until stock prices recover. So, recent retirees are living this right now if they retired without much safety margin.

On the other hand, If you HAVEN’T retired yet, and your numbers still look good even now, I think it may actually be a better time to retire, since you can hope that history repeats itself and there is a recovery.  It’d be like retiring at the bottom of 2009 with still-decent numbers. 

— (thanks Lauren!) —

Okay, so we’re probably not screwed either way. But still, as a Mustachian this seems like a great excuse to refer to point #1 above: use the chaos and disruption as an excuse to make yourself stronger. Become more efficient with your spending, find enjoyable ways to create value for others that happen to produce money for you as well, and improve your exercise, eating and personal growth programs as well. Because hey, why not?

Epilogue: How does all this Misery end?

Although you now understand that even the current situation is normal and healthy, there is even better news at the core of it: It’s a self-correcting problem, and the solution is already in the works.

A shortage of goods, a sloshing overflow of the money supply and inappropriately low interest rates led to everything getting more expensive. But meanwhile, companies have built more factories and hired more workers to increase production and now the central banks have cranked up interest rates and reversed their other support programs as well. 

The result: mortgages cost more so housing sales have slowed. Consumers and businesses are both pissed off by recent price increases and more cautious about the future so they are buying less stuff, which reduces the Everything-Shortage that we mentioned earlier. Suddenly, supply catches up to demand and prices stop rising.

Or to summarize all of this in a much pithier way: the solution to high prices, is high prices.

The world is scary and the stock market has plunged, but the fundamental picture hasn’t changed at all: billions of humans are working hard and applying their ingenuity every day to get ahead. It’s a messy process, but on average we continue to succeed at this task over time.  People who understand this unchanging mechanism will look at this year’s sale on productive asset and say, “Cool – sign me up for another helping of future wealth, and thanks for the deal!”

In the comments – what are YOU doing in response to this bear market? Are you scared, or doubling down on investing?

  • Turd Ferguson May 20, 2022, 3:24 pm

    “Medically impossible”, eh? New Zealand succeeded with it for a couple years, so I’m gonna have to say that it is, indeed, possible.

    • Mr. Money Mustache May 20, 2022, 3:40 pm

      The issue seems to be that China is prioritizing lockdowns over the much easier and more effective and dirt-cheap option of vaccines – partly out of pure stubbornness. Their domestically developed options are far less effective then Moderna, and even that is pretty weak at slowing the spread of highly contagious Omicron variants (although it does apparently still prevent most serious illnesses).

      But the ruling party keeps resisting western vaccines, and even then rolling the crappy domestic ones out far too slowly. And doubling down on zero covid, partly to avoid admitting that it was a foolish policy in the first place. You can’t stop a highly contagious virus in a highly connected world.

      The Economist has tracked the China situation pretty thoroughly since the beginning – it’s not just a matter of “saving lives”, there is a lot more craziness going on there.


      New Zealand: a tiny, wealthy island with 5 million people, about 0.3% of China’s population. And even then, they gave up on zero covid once they got vaccinated and later noticed how impossible it is to try to contain Omicron. And while New Zealanders seemed to support the policy so more power to ’em, I was certainly much happier living here in the US, continuing to get out and hike, bike, run my businesses and remain connected to loved ones throughout 2020 and 2021.

      Everything in life is a tradeoff between risk and reward – and for me this comes entirely from looking at numbers. In the case of Covid, these numbers are well studied (https://www.cdc.gov/coronavirus/2019-ncov/hcp/planning-scenarios.html), and they lead me to a policy of “sensible precautions, which stop FAR SHORT of any form of lockdowns”. Because a) vaccines work great and b) public health measures like eliminating sweetened beverages and encouraging outdoor exercise (the opposite of lockdowns) would decrease premature deaths MORE than lockdowns.

      • Paul May 20, 2022, 4:00 pm

        Having lived in China and having friends live there currently under lockdown, that MMM response was damn satisfying.

      • Turd Ferguson May 20, 2022, 4:52 pm

        Word, I agree with pretty much all of that. I’m not saying what China is doing is smart, I’m saying their aim is not “medically impossible” as you posited. Impossible should mean, well, impossible. It ain’t a surrogate for “difficult”, “stupid”, etc.

        • Spaceman Spiff May 26, 2022, 2:30 pm

          What’s possible for New Zealand may very well be impossible for China.

          China has almost 300 times as many people as New Zealand and they are packed 7x as tightly. (1.4 billion people v 5.1 million and population density of 145/sq km v 19/sq km)

      • Lex May 20, 2022, 7:05 pm

        “I was certainly much happier living here in the US, continuing to get out and hike, bike, run my businesses and remain connected to loved ones throughout 2020 and 2021.”

        You get it wrong.
        New Zealand had a very strict lockdown policy but the lockdowns were of the fewest and shortest in the world.
        We’re probably one of the rare country where people kept the most normalcy through 2020-2021.

        The last L4 in Auckland had been tough though, but nothing to compare to the whole lockdown subscription Melbourne went through.

        I reckon NZ leveraged pretty well its opportunities at the time, with closing the borders its more effective action but also higher cost of the strategy.
        But it was always obvious this strategy was reactive to urgency and to be short-term until evolving into a more sustainable balancing act.

        Not really about being happier, I felt much safer to be in a country where leadership, while not perfect, kept consistency, clarity, and evidence-based decisions at a priority and where political discord on the matter stayed somehow minimal compared to the frenetic antagonistic discord resulting to more outrage and misinformation madness that we have been able to observe overseas.

        But that was 2020-2021, it is now time to turn towards 2022-2023-2024 and indeed, not sure what China is attempting to do there…

      • AAT Accounting May 20, 2022, 7:05 pm

        Not one to dispute the overall argument, just a heads up that New Zealand operated almost completely normally with concerts and sports games and the like, for most of 2020 and 2021 – all while maintaining less than 20 total covid deaths. Was Omicron that changed the game on us; covid zero is now impossible. Early 2020 it wasnt even that hard.

        • Mr. Money Mustache May 21, 2022, 7:39 am

          Thanks for the correction, AAT and other New Zealand people. I had seen some stories about Australians being herded out of streets/parks and told to stay inside their homes (even if their homes had no outdoor access), but it sounds like NZ may have been more free.

          • Mark May 22, 2022, 11:06 pm

            Unless we were actually COVID positive, even during the worst, we we permitted outside for exercise for an hour a day, with our household.
            You could not have picnics in the park, or attend with other people who were not from your household, but this only lasted for maybe 4-6 weeks.

            Wasn’t really all that bad! Although the press commentary that I’ve seen out of the United States made it seem a lot worse than it actually was.

          • Alistair May 23, 2022, 6:08 am

            Australian here, that’s true that happened for a couple of months (and mostly in Sydney and Melbourne) out of 2020 and 2021 when cases ramped up, but for the vast majority of those years we had quite normal lives.
            I remember seeing videos being shared of troops being deployed in Australia while I was relaxing comfortably on a beach among hundreds of others on a rather hot day.

          • Ellie May 30, 2022, 9:27 pm

            I live in Adelaide, Australia, and we were absolutely free to do whatever we wanted, apart from a couple of months in 2020 when the world was blowing up. There was a rule for a while about having no more than 10 guests inside your house at any one time (not your garden, not in parks – and even then, the police took a really light approach). Picnics in the park, walking and hiking as always were actively encouraged, and once the borders were shut properly, we had festivals and nightlife, the same as we’d always had.

            Most people who live here were angry and upset when the borders reopened, and people started dying again. We just voted out the government that opened them. But I’ll admit that our position in the world (wealthy island miles away from anywhere) had a lot to do with the viability of the zero-covid policy here.

            I was just motivated to comment since you American’s seem to be under the impression that Australians somehow have less freedoms than you do. Restricted gun ownership, compulsory voting and free healthcare – that’s really all it boils down to. We like being left alone.

      • Graham May 20, 2022, 7:54 pm

        Speaking as a NZ person about to retire in a few weeks I’ve tramped 3 Great Walks, helibiked mountain bike tracks, gone on a 3 day sea kayak trip around the Abel Tasman National Park, cycled the Otago Central Rail Trail and fulfilled a personal bucket list objective to visit Mount Aoraki glacier by helicopter over the past 2+ years and commuted to work by ebike regularly (actually more pleasant during lockdowns!). Just recently I had a week on Rarotonga.

        So its not been bad, despite our borders being closed and undergoing some restrictions – but only 1 major lockdown for NZ Mar-May2020, albeit with fluctuations in Alert Level since then. (I don’t think we were ever stopped from going outside). The thinking here is like yours, we needed the vaccinations to reduce other restrictions and parts of our population have been less keen to have them – plus we were late to the vaccine party by ~3 months Even as a higher priority health care worker I only had my first in March 2021. RadioNZ have a timeline up which looks very accurate – https://shorthand.radionz.co.nz/coronavirus-timeline. NZ opens up entirely from August 2022 – if you’re vaccinated.

        Anyway – thanks for the perspective on the recent share market downturn. As an older investor I’ve gone through a number of bear markets since I started investing c1985 and am more realistic than others I know about the ups and downs of the stock market but its always great to get some validation for my thinking where we are too! Great to hear and read everyone’s thoughts from around the world.

      • Matt May 20, 2022, 8:16 pm

        Great answer. It’s clear that vaccines are extremely effective and lockdowns are not. You can see that in the state by state numbers – until vaccines red states (few restrictions) and blue states (many restrictions) had similar covid deaths, but after vaccines were introduced red states pulled ahead (since they have more anti-vaxxers). Nice of the US to give the world a controlled experiment with N=50.
        It’s baffling that China would go all in all lockdowns buy doesn’t seem to care about vaccines. The exact opposite of the optimal strategy.

        • Country Fire Guy May 20, 2022, 8:34 pm

          Baffling, because we know there’s plenty of smart people in China. This is a flaw of centralized control (authoritarianism)… it turns out, as maligned as our ‘divided’ democracy is, the heated dissent and debate still helps guide America toward better policies over time.

          Meanwhile, a new ‘Little Corporal’ is driving Russia over a cliff and murdering lots of kids in the process.

          “When will they ever learn”?

          • James Baker June 13, 2022, 1:02 pm

            Driving Russia off a cliff ? The sanctions imposed on Russia are backfiring spectacularly. The US, for example, has had to resort to buying refined oil for a premium from India (who, in turn, buys from Russia). Russia’s sovereign wealth fund has already re-bounded to pre-invasion levels and is poised to move much higher, while the rest of the global economy now crumbles. What you are seeing is a spectacular exercise in virtue-signaling by the Western conglomerate. The West will claim victory regardless of anything which happens in real life. As for murdering kids… I’m not even going to touch this hot load of you know what.

            As for the western “democracy”, it is a facade, a dream of the past. It is just as centralized as any authoritarian government. The effect of “centralization” is reflected more in the responsibilities that a federal government carries versus any local governments. The romantic vision has always been that we will take a million wrong steps, but we will “learn” from our mistakes and find the right way eventually. But this does not happen in real life. All the meaningful conversation (and change) happens at the grass-roots level. What happens at the top is a mockery of the purported due process. No meaningful change has ever, or will ever be initiated by our leadership under the current system. If anything is to happen, it will have to come from below, as it always has in the past.

      • Elena May 20, 2022, 8:59 pm

        Hey MM! I was one of those 5 million living in NZ during the COVID lockdowns. We could always go outside and bike!! Your points are spot on, it was a super popular policy down there till the end of 2021 mainly because it worked for so long! Harsh lockdown for 3 months in 2020 lead to COVID free life for 15+ months. Being on an isolated island has its perks! One thing most people don’t know is the rates of asthma and rheumatic fever are really high, and the amount of hospital beds, nurses and doctors per person is some of the lowest in the OECD. They had a lot of incentive to take a gamble on the elimination strategy! They rolled out vaccines very slowly in comparison to similar nations, but once it started they did a solid job. The strict mandates on vaccines caused a big riot, but even so I get the feeling most people felt the hard and fast lockdowns, at least initially, were worth it. Not to say there aren’t downsides, but for sure anyone who was there in July 2020 at a music festival, not even owning a mask and with almost 0 percent chance of catching covid was happy!

      • Wayne P May 21, 2022, 12:35 am

        Live in NZ in 2020 and 2021 was excellent. Zero covid for those two years meant no death and disease. We could watch the rest of the world losing its mind, and could do anything we liked, within NZ at least

        Unfortunately, omicron came along, and not much we can do about that.

      • Jango May 23, 2022, 6:49 am

        And all the lockdowns and the vaccine were so unnecessary, I am from Sweden and we kept our freedom and health according to all the data, without lockdowns or almost any restrictions….

        Always amazed how people are willing to give up their freedom because of a little bit of fear, instead of looking at the data and see that the virus was not as deadly as it seemed.

      • Christopher September 30, 2022, 4:18 pm

        I’m thinking not knowing, we bottom at 3,400 on the S & P 500. That’s my guess for the record books!

        • Tom Morrisey February 20, 2023, 10:25 am

          The S&P turned around the day after you posted this and is up about 12 percent since — how did you do that?! :)

  • Nomadic Samuel May 20, 2022, 3:28 pm

    For those who haven’t experienced a bear market in their lives this is the greatest gift of all. It had to happen at some point and getting used to drawdowns, anticipating and expecting them is a part of the investing journey.

    • Matt May 20, 2022, 8:18 pm

      Anyone older than two years old has experienced a much scarier bear market than this!

      • Daemone May 21, 2022, 1:09 am

        If you weren’t investing during a bear market, you didn’t experience it. I don’t know many two-year-olds who manage their own portfolios…

        But more seriously, the last one was such a flash-in-the-pan blip that I imagine the people who were that young *in investing terms* didn’t have time to learn any lessons about the cyclical nature of the market. “Phew, everything’s back to normal (irrational exuberance)!”

      • Troy May 21, 2022, 2:37 am

        That one (the COVID flash crash, basically) was so quick, and we had the global pandemic on our minds, that I don’t think that one really registered as a bear market, at least not in my memory.

  • Ann May 20, 2022, 3:48 pm

    Sequence of return risk is very real. For someone who has just recently retired with barely enough money to fund an extremely basic lifestyle and moved somewhere it is not easy to get work they will be in trouble for a long time. Yes there are retrospective solutions to these problems, including a substantial safety margin, which you do mention but don’t emphasise enough. I agree with you most people with an intelligent plan will be ok.

    The maths https://earlyretirementnow.com/2018/05/09/the-ultimate-guide-to-safe-withdrawal-rates-part-24-flexibility-myths-vs-reality/

  • DuckReconMajor May 20, 2022, 3:53 pm

    “On the other hand, If you HAVEN’T retired yet, and your numbers still look good even now, I think it may actually be a better time to retire, since you can hope that history repeats itself and there is a recovery. It’d be like retiring at the bottom of 2009 with still-decent numbers. ”
    I never thought of it this way. I don’t think i’d want to retire midst-recession on purpose but if things got bad or you get laid off it’s a good reason to go ahead and start even just a trial retirement and more cause to be hopeful. Thanks Lauren and MMM, great article.
    Also if you’re like me and your savings rate is less-than-Mustachian, as noted If you’re fortunate enough to still have at least a decent job this is a great time it’s a great time to bump up those numbers if you can, even if temporarily.

    • Peter Ferrante May 21, 2022, 1:51 pm

      I agree it is a different way to look at it. Although to me, hope is not a good strategy. I think the market downturn is a great motivator to keep working until the recovery starts sometime in the future. So I agree with you that I would not want to retire midst-recession. Why?

      Average bear market is 10 months. Longest was about two years. Longest was in my lifetime, when I was 11. Although I am not retired and don’t plan on retiring this year. I believe if I had planned to retire. I would work two more years just to be safe.

      The worst case scenario though is the continual bear markets of the thirties. Bear market after bear market. 10 in a 10 year period. That doesn’t sound like fun for a retiree. Are we really smarter than we were 90 years ago?

      After thinking about the last paragraph, the worst case scenario above could easily be surpassed. Just because it hasn’t happened before, doesn’t mean it can’t happen. Please remember that past performance may not be indicative of future results. :).

      Good luck to us all in retirement.

      • Farda October 14, 2022, 6:57 pm

        Longest bear market in the Us in the last 100 years might be 2 years, but that was top to bottom and took much longer to recover from than 2 years. MANY other countries have had much longer recoveries.

        It might be a great time to retire with a good portfolio, but if one is working, then waiting another year or two until the world seems more stable might not be the worst thing. My numbers suggest I’d have a bugger, but if I can put up with another couple of years of work – why not? I think that this is better than retiring at a peak and assuming that all will be the best in the best of all possible worlds.

    • SugarMountain May 21, 2022, 2:14 pm

      Retiring in a recession also can provide opportunities like a higher likelihood of a severance package and government programs. 2020 was a great year to turn a layoff into retirement.

  • Country Fire Guy May 20, 2022, 3:56 pm

    I’m doubling down; looking for budget efficiencies so I can buy more stocks on sale.

    Interestingly, this particular crash has a bit of a ‘what if the world descends into a big nuclear conflagration’ flavor to it… I’ve found it helpful to quantify those thoughts, plan where I can, and then proceed logically.

    For me, this meant socking away a year of non-perishable food, a gun, ammo, medical supplies, my kid’s med, ample fresh water and a filter, and a very small stash of 1oz. silver coins to barter with. That cost about $3k, which may be crazysauce, but helps me sleep better and cost me about 0.03% of my net worth.

    Then everything else goes back into the stock market, because if the entire economy crashes, I can eat my canned beans… if not, the likely reality is continuing long term gains :)

    • Nick May 20, 2022, 8:47 pm

      I’m considering going back to work to buy more stocks while they are on sale. It’s amazing how many people sell in the panic.

      Unrelated – The free market is a wonderful thing. Central banks fuck it up. The cost of borrowing money should be the cost of borrowing money without government subsidies. The central banks are incentivized by the administration to inevitably prolong the bubble.

    • Jackson May 21, 2022, 2:25 am

      If your net worth really is 10 million bucks I think you’re gonna be fine.

    • Rich May 21, 2022, 6:15 am

      If you did the math right, and $3,000 is really .03% of your net worth, that’s $10 million. I’d say you don’t have too much to worry about even if your net worth falls by half, right?

      • Country Fire Guy May 22, 2022, 9:58 pm

        Whoops – as a couple of you pointed out, I slipped a decimal point! Thankfully I’m not an anesthesiologist, hehe… should have been 0.3% (my net is about 1M, which is mostly in paid for land – still chasing FIRE with a goal to save more cash/stocks in the coming years so I can RE with enough margin to pay property taxes).

        The important concept I was getting at was this: to the extent I was feeling emotions and anxiety about overall world events, I bought some coins, ammo, water jugs, and food. What I did NOT do, but I think many people do, is sell a bunch of stocks or stop investing because they FEEL nervous. Logically, recognizing that the odds of a total collapse of the stock market (all businesses are suddenly nearly worthless) is nil, but if that does happen, cash deposits at the bank will be useless too. So buy some useful stuff, then proceed with normal investing (and double down if you can).

    • YPSC May 21, 2022, 6:49 am

      I would skip silver and bullets but increase meds and water/food. About one month after the war in Ukraine started people were running out of meds, supply chain disrupted and no one can imaging Russian fuhrer will actually invade. Ukrainians were asking for meds and unfortunately in US they are only thru Rex…

    • YPSC May 21, 2022, 7:34 am

      Skip silver, stock on meds and food. War in Ukraine showed us people ran out of Rx meds in one months or so, with supply chains disrupted it became an issue for so many people. And unfortunately a lot of meds sold there over the counter are by prescription here in US. Terrible feeling when you cannot help …

  • Ben May 20, 2022, 4:01 pm

    One of the most important buffers is to hold 1-2 years if spending in a cash account.
    Your dividends pay into that account, and you draw a ‘wage’ to your general account.
    This structure will keep your income payments more wage-like during market downturns, which helps to manage any anxiety about your actual portfolio value at any given time.

    • Frugal Viking May 21, 2022, 5:55 am

      Good advice! A former Swedish Finance Minister (Liberal) once said: “Everybody ought to have at least one year’s salary in their bank account.”

  • Frogdancer Jones May 20, 2022, 4:25 pm

    I retired at the end of 2020 from teaching. I was 57.
    I had the BEST year of freedom in 2021- even during pretty much a whole year of lockdowns (I’m Australian) – where retirement was the best thing ever.
    This year, I’m doing some CRT (casual/supply teaching.)
    Why? Two things: Sequence of Return Risk and a wedding.
    A son is getting married next year and I said I’d help with the cost, which has worked out to be 7K.
    I’ve been single for 25 years and I only have MY portfolio and superannuation to rely on. To me, it makes sense to help them out a bit by earning some money to cover my household costs when the market falls in the early years of retirement and Sequence of Return Risk is… well… a risk.
    Am I happy to be back at work after I officially retired?
    Well, it helps that I still love being in the classroom. It also helps that casual relief teaching cuts out the meetings, the marking and the paperwork that I hated about the job and were the reasons why I retired early(ish) in the first place.
    The downside is that I really don’t like how so much of my time is now taken up with the job and the commute – but hey. It’s only

    • Country Fire Guy May 20, 2022, 8:17 pm

      Thanks for the illustration of a key principle of Mustachianism – you can always work just a little in a job you enjoy to cover reasonable expenses (and in your case some reasonable generosity), which dramatically reduces your risk of running out of money due to withdrawals during a downturn. Have a great time at the wedding!

  • dclarke1 May 20, 2022, 4:25 pm

    Thanks for the article. Big fan and long time reader.

    I would say about the fed pouring cold water on inflation – they have not begun to do that. They may now be pouring less gasoline on the fire, but that is no way to fight it. Price increases have been more than triple their target for several months.

    This can cause a real pinch for those whose wages don’t keep up with the loss in purchasing power. The 7% total return consisting of 4% real and 3% COL increases should actually be more like 4% + 8%, at least for the short term.

    But generally the stop-worrying-and-keep-being-productive-and-investing attitude is a good one and should lead to long-term good results.

  • Chris May 20, 2022, 4:26 pm

    Great read. What advice do you offer for those thinking of buying a home in the next year? Will the increased mortgage rates put enough downward pressure on home values to justify waiting?

    • Country Fire Guy May 20, 2022, 9:22 pm

      Hi Chris – to answer your question is difficult, because it depends somewhat on the market. Obviously, higher interest rates drive up mortgage interest payments, thereby reducing affordability, which puts downward pressure on prices… but will that offset the higher interest costs enough to make you better off by waiting?? THAT depends on inventory. If you live in a place where buildable lots are plentiful, flippable junkers abound, prices are ‘bubbly’ and/or population is declining, perhaps yes. If you are in an area that has no room to grow (big metros), and gaining population, maybe not. Best advice for buying a house is buy when you can predict you’re staying put for at least 5-7 years, and can comfortably afford both the down payment and associated costs. Then just buy a good house for you – don’t worry about the market too much. Sorry for the novel ;)

  • LindaF May 20, 2022, 4:30 pm

    I retired 1/1/2020 with $1M and still had that amount until this recent downturn. With just a small mortgage at 2.25%, I can wait this one out. I’ll put off a few vacations and house updates till I see the market turn around. Even though “maybe I should get a job” keeps rolling around in my head, I don’t need to. I don’t think the bear market will last too long. So I’m not scared, just a bit concerned. I haven’t been checking my accounts though like I was last year. I don’t want to see the lower numbers. I do hope that this cools off the real estate market. I want my kids to be able to afford a place to live.

  • MarfaP May 20, 2022, 4:32 pm

    I am about to retire and my numbers look ok for now at 4%; they look much better in Jan. at 3% ;). As was mentioned in the discussion – it might be good time to call it off if the numbers still look good – but they might not look that good in a month.. So while I trust the idea of 4% at this particular moment – I am still holding on and building an additional car reserve just in case , any thoughts?

    • Lauren Boland May 21, 2022, 5:38 am

      Yeah, it’s really hard to perfectly time the market. If you’re like me, and you’re close-ish to retiring, it’s probably best to watch this recession until the market starts to come out of it, before actually retiring. Any dollar invested now will be huge in the future.

    • Steve (NWOutlier) June 4, 2022, 11:04 am

      4% is the new 2.8-3.25% – assuming you have stocks and bonds…

  • Trevor May 20, 2022, 4:47 pm

    I’m selling a rental property and hope to buy the market at the dip. Close in three weeks, hope it’s still down. 🤞

    • Emma May 20, 2022, 5:26 pm

      I’m pretty sure market will still be down for at least several more months – maybe through the fall even. Getting inflation under control while take a while. And the Fed has told us they will continue to tighten which is what will keep asset prices down.

    • Troy May 21, 2022, 2:42 am

      The old “catch the falling knife” trick, eh?

      • Robert May 21, 2022, 8:43 am

        Pretty sure he means it would be nice to buy while the market is still down significantly. “Catch the falling knife” (to me) means throwing every available dollar you have at the market (usually when it is dropping) vs sitting on cash waiting for the bottom. Of course, I don’t know where the bottom is and neither does anyone else.

        One is better off buying when one has the money as “time in the market” creams “timing the market.” Some people do get the timing right but I wouldn’t bank on it as a long-term winning strategy.

        Not sure the “catch the falling knife trick” applies here. Looks like he wants to get the money in the market when he has money. He is not trying to time the market (sit on cash waiting for the bottom) and you can’t buy if you don’t have money.

  • Drew May 20, 2022, 4:52 pm

    I “retired” (very loosely defined) in February of this year at the crusty old age of 42. Like most major decisions in my life I seem to have chosen crappy timing. Ha! At this point, my portfolio is down about 15%, which is not catastrophic but has prompted me to adjust my expenses planning for the time being. Based on where the market was at its peak (about when I “retired”), I was planning on following a conservative 3.1% withdrawal rate, where 2.1% represents a very comfortable set of living expenses, and the 1% was an estimate of travel expenses that could be adjusted if necessary. So I’m basically back to spending 3.1% of my new (15% lower) portfolio, which is actually 2.6% of my original (peak) portfolio (cutting my travel expenses estimate in half to save the 0.5%). Maybe I’m being overly conservative and should go back to my original target (which would be about 3.6% of my current portfolio), but I figure better safe than sorry until things start to look better. Then maybe I’ll increase my spending to match. Flexibility is key, I suppose, but a fancy new (inexpensive) camper van would be awfully fun!

    • Sylvie May 27, 2022, 6:21 pm

      Thanks for the numbers. Nice to see examples of how those who are retired are managing this for future reference.

  • DavidAnnArbor May 20, 2022, 4:55 pm

    I plan to slowly convert some of my cash positions into owning more of the total stock market index (with a side helping of international index too)

  • Jay May 20, 2022, 5:06 pm

    I’m “somewhat” retired, and not worried at all. Spent some time today actually day trading just for fun and to try to make a few bucks….BTW for any who haven’t retired, its really so nice…I really don’t want to go back. The company sort of let me go due to business declining, and I’m in no hurry to rush back in….I think the whole thing was trying to tell me something.

  • Suebie66 May 20, 2022, 5:14 pm

    I do plan to keep on buying like I have but I’d like to point out that your graph with its red line is tracking the high points of the trends. If you were to put same red line on the nadirs of the trends, it would appear that we are no where near the bottom yet. For that reason, I’m a little hesitant to buy in bulk until we have a full correction of the last winter’s madness.

    • Troy May 21, 2022, 2:50 am

      He didn’t “put” his red line on the graph so as to track high points. He placed the line so that it started at the value of VTI at the beginning of 2011, and ended with the value of VTI now. If we look at the same graph in six months, and the market has continued to tank, the slope of the line will be shallower, and if the market has bounced back, it will be steeper. You can’t look at any part of this graph and determine what will happen.

      So, while you *could* wait until you think we’ve found the bottom before you buy in bulk (and you could be wrong), you could also just dollar-cost-average in each month. Personally, I prefer the latter, because as smart as I like to think I am, I don’t think I’m very good at trying to time the market.

  • David May 20, 2022, 5:26 pm

    Still think the S&P 500 can drop another 20% or so to truly get us down to “normal” stock prices. All the economic stimulus (covid stimulus checks), fed keeping rates low for a decade and the covid shutdown has way over valued everything. Rates rising and spending levels lowering should take air out of the ballon to avoid a bursting. Energy and commodity ETFs should perform well over next several months then looking to jump back in an SP500 ETF around end of year.

    • Mark June 6, 2022, 12:13 pm

      By your own admission, stocks are overvalued by “stimulus checks” and the “fed keeping rates low for a decade”, so, where do you think this money is going to go once skittish stock speculators sell? Investors are sitting on record amounts of cash seeking a great investment opportunity.

      PE ratios have been rising for decades, and the numbers are relative, not absolute. There is no physical law stating that a PE of 15 is fair value. If you only ever bought stocks when this metric was undervalued by a historical yardstick, you would have missed out on ~13% annualized growth rate over the last decade. Staying in cash or safe bonds would have meant a tremendous loss of real wealth.

      Consider the tax implications of your jumping around too. You need to choose the right ETF, sell at the right time, and then buy into the S&P again at the right time. And if you’re a worker bee, you’ll be paying income tax at earned income – not long term capital gains rates – it very likely makes more sense just to buy and hold the S&P index once your tax burden is factored in. And this is even if you choose the right short term investment vehicles and time it correctly – a very optimistic assumption.

  • Jon May 20, 2022, 5:33 pm

    It certainly is true that the market has been dependable to continue rising over a long span of history. I wonder how long that can last though? We can’t expect economic growth FOREVER can we? Aren’t there physical resource limitations we run into on our planet, and aren’t we bumping up to a whole bunch of those limits right around now?

    • JKJ May 21, 2022, 1:45 am

      Jon! The resources on our planet are so mind numbingly huge, that we have barely started to scratch the surface. Literally. Of course, it is all a matter of cost, but the resources are there. But, if we think a little bigger and consider our solar system too, then resources become an afterthought. I recommend the youtube channel Science and Futurism with Isaac Arthur (SFIA) as a good resource for information on this topic. The “Future of Energy, Industry and Agriculture” playlist is a great place to start! Link: https://www.youtube.com/watch?v=ChTJHEdf6yM&list=PLIIOUpOge0LuntVwrflGX6q94zC3s5TXj

    • Troy May 21, 2022, 3:01 am

      Maybe we (nearly?) wipe ourselves out here in the next 5 – 200 years. But maybe we manage to start figuring shit out in a way that *doesn’t* destroy us. Harnessing more solar power, safe nuclear power, better farming practices, asteroid mining, medical technologies that expand our healthspans and lifespans, things that we haven’t even really thought of, or at least most of us haven’t even heard of, today.

      Think back 50 years ago, to 1972: no personal computers, no mobile phones, no digital cameras, no MRIs, no CT scans, no DNA testing, no viable fiber-optics, no electric cars, no GPS. Those are some radical changes, and I think we can expect these types of developments to occur at an even *faster* pace in the next 50 years.

    • Clint May 27, 2022, 2:09 am

      At its core, the source of the perpetual rise in global financial markets and global production over long time periods stems from two primary driving forces: population increases and efficiency gains. Global population is continuing to increase and that trend will probably not reverse in our lifetimes. Efficiency increases with every technological advance, so that will also likely continue.

      Unfortunately for the individual human/investor, the key words and phrases above are *global* and *long time periods.* There certainly have been and continue to be markets that stay depressed from their peaks for time periods that would be financially ruinous for all but the youngest individual investors, and there are markets within markets that rise or fall disproportionately to the overall market.

      This is where MM offers sage advice when he recommends index funds (read: built-in diversification) and incremental investing that essentially accomplishes dollar-cost averaging. If you bought every stock at the peak in 1929 and never invested again, it would have taken you 20 years just to break even. Had you bought at the top but continued to invest incrementally every month for the next few years, your breakeven point would have come much sooner.

      Having said all that, it bears mentioning that past performance is no guarantee of future results. Anyone who thinks they are immune to a financial wipeout just because they practice responsible investing habits is deluding themselves. One cannot take the “risk” out of risk management. Happy investing, from one investor to another.

  • Wade Shanley May 20, 2022, 5:47 pm

    Great reminder article. Downturn has been painful so I printed a hardcopy of a chart similar to your redline trend and keep it on the wall by my computer to remind me to keep calm and this is a blip on the long road to returns. My only regret is that I don’t have more money to put into the market thru this downturn as I recently retired.

  • DerekJ May 20, 2022, 6:00 pm

    Out of fear of losing my job/home I got out of the market in 6/2020 and missed the huge rise :( and recent fall. I’ve been waiting for a correction to get back in, looking at the “red line” every day waiting patiently.

    I still have another 10+ years before I retire.

    Does now look like a good time to get back in and up my 401k to maximum contributions?


    • Jackson May 22, 2022, 1:19 am

      The lesson you should have taken from missing the rise is that neither you nor anyone else knows the “best” time to get in to or out of the market. Empirically, the best guess at the best time to get in has always been “today”.

  • Emma May 20, 2022, 6:01 pm

    Hey MMM,

    I’m an occasional visitor here & one of those “financial anarchists” that loves Bitcoin. I agree with the general idea that economic cycles are normal including recessions and bear markets. OTOH, inflation is/should not be normal and has to be reigned in – thus the Fed has no choice but to pursue the current hawkish policy.

    The part where my perspective differs is that I have a lot less faith that the Fed can control the outcomes of its own monetary policy because the entire financial system is so levered up. US debt to GDP is approx 120% – a dangerous level. The World Bank establishes a 77% threshold as the tipping point for when debt becomes really bad & makes the system very fragile.

    This is where Bitcoin comes in because it is a monetary system that
    * Is governed by rules hard wired in the software code, not by people
    * Incorruptible, cannot be controlled or manipulated by fallible humans under pretense of “monetary policy”.
    * Secures individual’s property rights from confiscation and tyranny.
    * Separates government from money so you can store the of value for your life’s work without threat of it being inflated away by a government’s irresponsible policies.

    Highly recommend reading “The Price of Tomorrow” by Jeff Booth – very thought provoking & will totally change your worldview.

    • Ian May 21, 2022, 1:42 pm

      Def agree with you on Jeff Booth’s book Emma. Quote from Jeff “Money is just information, so it makes sense that if it is corrupted in the form of printing, we would get misinformation everywhere else. ”

      Jeff shows how an inflationary biased monetary system and deflationary technology trends are two tectonic forces that are ripping the fabric of society. Solution, honest money of some kind that doesn’t require more and more debt/credit to function. Ideally we grow the money supply over time by having it be more divisible instead of more debased.

      Good description of Jeff’s thesis:

      • Emma May 22, 2022, 12:15 am

        Thanks for the link to the review – good summary of the conclusion:

        Booth is also persuasive when he concludes that we don’t need jobs for our lives to have meaning: “We are trapped in a system where we don’t know what we would do with ourselves if we didn’t have jobs … allowing abundance without the jobs might actually open an entirely new enlightenment era where we have time to enjoy the benefits that technology brings.”

        There’s another book I stumbled across called “Bullshit Jobs” by David Graeber. I haven’t read it but one of the top reviewers on Amazon says this:

        Graeber’s defines a BS job as ‘a form of paid employment that is so completely pointless, unnecessary, or pernicious that even the employee cannot justify its existence.

        Graeber argues that the rise of such jobs was not due to economic factors but political and moral ones.

        ‘How have so many humans reached the point where they accept that even miserable, unnecessary work is actually superior to no work at all?’

        If Graeber is right that this is not an economic problem but a political and moral one, then the solution cannot be economic either. Unfortunately, Graeber is loath to make policy recommendations. That keeps us then, in utter suspense – unless workers revolt.

        Very interesting & thought-provoking concepts.

        I wish MMM would read these books and start a discussion of these topics – people in the FIRE community would be the best ones to have intelligent, civil discourse on it.

        • Dan May 27, 2022, 8:36 am

          Emma and Ian: Fully agree. I’m a reader of this blog since ~2014 and still agree with the main thrust of the MMM approach to saving, investing, and mindset toward happiness and efficiency. Forever grateful to Pete. I’m only a couple years into learning about bitcoin, and the potential is inspiring on many levels. I’d love to see more discussion within the FIRE community at the intersection of these two life-altering ideas: financial independence and sound money. For example, the real returns on bonds are deeply negative now, so investors are pushed out on the risk curve to own more stocks than perhaps they should. Fine for 30s and 40s but excessive for boomers. Replacing some or all of the bonds in one’s portfolio with bitcoin could be a strong play over the long term for many investors. Taking a significant bitcoin position e.g. 50%+ is highly debatable and subjects the investor to intolerable levels of volatility, but something between 1-10% is an extremely interesting shift, and it doesn’t seem like too many people are talking about it thus far. Right now it still feels like it is all one trade, btc tracking alongside qqq, but I expect there will be incremental decoupling in the coming years.

        • MKE June 16, 2022, 8:40 am

          I was wondering when the book “Bullshit Jobs” would get mentioned. So there it was!

          The key takeaway from the book offers a lot of insight into the compulsion to retire early. And that is – the less benefit you provide to society , the more you will be paid.

          Now keep in mind the book is about jobs, not starting up businesses, creating, and inventing. Jobs in the wage slave sense.

          Most white collar jobs, especially those that pay a lot, are complete and utter bullshit. Even the employees working in those jobs realize they are throwing their lives down the toilet in exchange for gobs of money. In spite of all the social conditioning that leads us to believe that nothing matters except money, most people down deep do not feel this way. Doing unnecessary horseshit “work” all day long gnaws at them.

          But useful work, like most blue-collar work, pays crap. You can have meaning in your work, and deal with the low wages. Or you can waste your existence and medicate yourself with money.

          Money as medication only works to a point, so the response of decent people is to desperately seek early retirement.

  • Grant May 20, 2022, 6:04 pm

    Right now I’m holding off on significant investment, and focusing on paying down bad debt (or more accurately, build up the offset of my home mortgage). In the next year or so I will look at another investment property

  • Travis May 20, 2022, 6:39 pm

    Response to the bear market. . .

    I’m sitting on my back porch enjoying my outdoor fireplace that I built myself over the past several months (god bless youtube and the internet). My family passed the FI point years ago but we both continue to get up and apply our knowledge and talent to hopefully nudge our community and planet in a positive direction. We continue to invest 50% of our take home pay in the future (VTI baby!). We still make our own coffee at the same time every morning. We still walk the same block with our two dogs. The sun still sets in the west. I suppose something in the world has changed since the market dropped 20% but I can’t seem to see anything different in my life. All the best to you MMM, feel free to stop by next time if you wan to bring your son to KY. I need someone to show off my amateur masonry skills to.

  • Zack Harris May 20, 2022, 7:17 pm

    I’m doubling down! Every spare dollar I can muster goes straight to VTI. It’s so exciting to get a share under $200 again lol

  • Connor Bryant May 20, 2022, 7:22 pm

    You mention Russia as a factor in inflation, but didn’t really explain that mechanism. How did a third-rate GDP getting closed off from the world result in 18%+ annualized US consumer inflation?

    Don’t you think the Federal Reserve, by diluting the money supply, could have created some inflation directly?

    • Troy May 21, 2022, 3:11 am

      He didn’t say that the Russia situation, by itself, caused 18% inflation. He said it was a compounding factor that *increased* inflation. And it’s not just Russia that is impacted here. Don’t forget Ukraine which, like Russia, is one of the world’s largest wheat exporters. Ukraine is also a major exporter of several other food products like maize, rapeseed, and sunflower. This is just one aspect of how the conflict would contribute to inflation.

    • Dustin May 21, 2022, 7:26 am

      You are correct in your thinking. This made this post hard for me to read, but I try to take the good with the bad. Inflation is correctly defined as a ruse in the money supply, not a rise in prices. The rise in prices and wages is an inevitable result in the rise of the monetary supply. The FED printing half of all dollars in existence in less than two years, coupled with the destruction of supply chains from government imposed lockdowns and things such as ESG interference, sanctions on Russian exports, etc. has led directly to the rise in prices.

    • Mr. Money Mustache May 21, 2022, 8:11 am

      Yeah I definitely agree: our central bank’s low interest rates and asset purchases with free money definitely boosted economic activity, went a bit too far this cycle, and caused faster inflation than we’ve had in past cycles. As I watched house prices rocket upwards and noticed crazy-low inflation over the past year, I was hoping they would have tightened up a little earlier. But, better late than never.

      However, as a carpenter/armchair money blogger I don’t consider myself qualified to *completely* discount the lifetime expertise of Jerome Powell and all of his colleagues.

      Back in 2015, I spent a long month grinding through former Treasury Secretary Timothy Geithner’s book called Stress Test, and it left me with significant respect for the role these institutions play in our economy, and the competence with which they do it. And throughout Geithner’s career, people were slinging the same mud about inflation and incompetence.

      I think anti-Fed sentiment is a bit of a religion. And you can judge the truth of the religion by looking outside: is our country massively wealthy with a shit-ton of gleaming houses, factories, museums, schools, parks, hospitals, and even trillions of dollars of military stuff regardless of your stance on that aspect, or not?

      Yes, of course we could always do better – humans are imperfect. But god damn, as a guy who grew up in a less wealthy country and showed up here with no money, I am still pretty impressed with the USA. The fact that it can function this well even with some very sketchy politicians and bizarre conspiracy theory belief systems thrown into the mix, is quite remarkable.

      • frank May 22, 2022, 3:05 am

        Its always easy to look back in hindsight and say the bank should have done this or that. I often think inflation and its causes are simplifed to much. In Europe inflation is generally seen as a supply issue (of workers, goods etc) that causes it and we often discount the impact of low interest rates etc, and in the USA everyone simplifies it the other way and blames the government for spending money

        • Dustin May 22, 2022, 9:45 am

          This is a good definition of inflation and, more importantly, how it affects the economy. Worthy of a full read, especially the “Pros and Cons” section.

          • frank May 22, 2022, 10:48 am

            Its an intresting read but again it doesnt mention issues with supply of goods and services that affect inflation. The Ukraine War is an example of supply shock, the war means its harder to get food out of ukraine and countries are deliberately reduving the amount of oil they are buying from russia. These events are going to push up prices, yet money hasnt been printed or made

  • Dave May 20, 2022, 7:32 pm

    Thank goodness I don’t live in Colorado. It’s may 20 2021 and the Colorado Rockies game is snowed out lol. Sounds like you need some global warming

    • Mr. Money Mustache May 21, 2022, 8:14 am

      Yeah, although variety is the spice of life. I was swimming in the creek under 90 degree sunshine on Thursday, walking with my son through snow and slush on Friday, and we’ll be back to enjoying beach weather within another few days!

  • Sword Guy May 20, 2022, 7:40 pm

    We retired with generous safety margins.

    So what we’re doing is increasing our spending by hosting a Ukrainian refugee artist in our home and studio space, and maintaining our pre-existing charitable donation plans for the year.

    What the hell is the point of being rich if you can’t do something useful with the money?

    • Country Fire Guy May 20, 2022, 8:22 pm

      That’s awesomeness. Every little bit of human kindness that runs counter to this grotesque war is commendable.

    • YPSC May 21, 2022, 6:57 am

      Thank you for doing that!

  • Dave May 20, 2022, 7:43 pm

    Once that idiot Biden gets out of office and they get a responsible spending Republican as president the economy will return to normal. Until then expect the stock to go down or do nothing

    • david wendelken May 20, 2022, 10:09 pm

      Check the facts. Republicans increase the deficit rate, Democrats tend to reduce the deficit rate.

      There have been no “responsible spending” Republican administrations at the national level for most of my 6.5 decade lifetime.

      • Luisa May 20, 2022, 11:57 pm

        Rachel Maddox always says don’t listen to what they say, watch what they do. Republican administrations have always overspent democrats. its just that the bulk is invested in tax cuts for richies and not productive programs or trying to reduce the economic inequality in our country. Can’t speak for Biden yet, but think about starting with Clinton, dems leave us in a “surplus” condition; Republicans get us into major deficits because they push those savings to the rich.

      • Troy May 21, 2022, 3:12 am

        He’s *definitely* not going to check the facts.

    • frank May 22, 2022, 1:11 pm

      The last repsonsible spending president was Bill Clinton.

  • Scott V May 20, 2022, 8:03 pm

    Thanks for another well-written and balanced article on how these cycles work, MMM. I always appreciate that you stand out as a voice of reason when many others are losing their heads and preaching hysteria.

    A lot of good responses in the comments today, and I particularly liked Travis, Zack and Sword Guy’s take on the current situation. I’m in the double down & invest camp on this one.

  • Vlad S. May 20, 2022, 8:22 pm

    We Mustachians know to 1) invest in broad based index funds, 2) have a good accountant, and 3) learn to mostly ignore the market, media, and politicians.

    Compared to the current monetary system, are there benefits in being able to save your hard earned cash without 1) the fear of dilution of USD, 2) the tax implications of periodically selling index funds, or 3) the timing of bear and bull markets, fueled by an increasingly neurotic media and political leaders?

    Is this truly the best our money could be?

  • Alec May 20, 2022, 9:06 pm

    This looks and feels a lot like the 2000 crash but with a major twist, persistently high inflation that the fed was way too slow to react to. The markets are not oversold. There has been no capitulation. The markets have a long way to drop before anyone could say with a straight face that stocks are cheap.

    I retired on December 31st 2021. The exact market top. So I interviewed for a position and am returning to work in June. I am lucky enough to be able to still earn great money at 56, so I think a couple more years of work is the right move especially since my wife still works. Everyone needs to figure out on their own how to navigate this crazy thing called life.

  • Luisa May 20, 2022, 11:48 pm

    I retired in March 2021. I had enough resources but still enjoyed my job because I like my clients. I moved states literally at the beginning of the pandemic (day 3 in the new home came with my new state shutting down). And during the pandemic it got so difficult doing business that I spent that year figuring out how to retire-whether I was mentally ready. I’ve always been a conservative planner- I assume I’ll spend more than I do- I knew I would do okay. All the capital gains distributions have been killing me on taxes for the last several years- 2021 was the worst and will kick me into a higher Medicare premium in 2023. Of course capital gain distributions don’t mean you make more money- it just rearranges the same deck chairs. But since the downturn I have been monetizing my portfolio losses (with tax swaps each 31+ days apart)to have the tax cushion when things turn around. Also, I have added to holdings on major down days and with enough cash in the bank for a couple of years have switched to DRIPs for additional opportunistic buying. Given the accumulated tax loss YTD and 2021 being my biggest capital gain distribution year ever, I should not have to worry about paying taxes on capital gains for 3-4 years after rebounding. It would have been nice if this market downturn played out in a big way in December to save me on 2021…oh well…

  • SMZ May 21, 2022, 12:21 am

    I am living this now, retired early in Feb. 2022 in my later 40s close to the market peak. Approx. same investment experience as MMM. My advice having lived through previous bear markets for some of you kids:

    1) When thinking about investing, start with your own comfort level in terms of what you can stomach to lose short-term in the process of obtaining long-term wealth. It is key to use real numbers and think peak to trough, not annual loss. Graph it in portfolio visualizer and challenge yourself if you can really deal with a 50% loss if you’re all in equities without getting the willies. It feels the hell of a lot different to academically declare you can live with an x% loss vs. actually losing a million dollars on paper.

    2) It is important to start with 1) because it is crucial to be mentally ready to do ABSOLUTELY NOTHING during a bear market.

    3) Familiarize yourself with boring financial history. Stocks can be down for a long long time. I remember the lost decade, for example, and was around in the 70s (without being able to claim any interest in investing then).

    4) Set up a mix of stocks and fixed income that meets your comfort level that you determined in 1).

    5) Consider diversifying your portfolio with assets that respond differently to different market conditions. The late David Swensen of Yale is a good source. Don’t become greedy and focus on past return to predict the future, but rather think about general sources of risk.

    6) Contrary to what some people tell you, fixed income is very useful for most investors. You sleep a lot better at night knowing that you have bonds with short maturities and hopefully some TIPS, which you accumulated for years when no one talked about inflation – or a bear market.

    7) Have a safety margin before you pull the plug. You’re good if yesterday’s 3% becomes tomorrow’s 3.5%. You’re toast if an overly aggressive 5% becomes 7% and you’re all in equities during an extended bear market.

    8) Think long-term. Your portfolio is built to last a lifetime, even if things don’t go optimal initially you’ll figure it out if you don’t do stupid shit in the process (like panicking and selling stocks in a bear market).

    9) If you’re operating at the margins, perhaps think about your portfolio not so much for endless retirement but rather as F-you money. The latter means you’ll keep working longer-term but don’t need to put up with everything Corporate America throws at you if you really can’t stand it any more. F-you money increases your capacity for risk.

    10) If you’re early in your investment career, a bear market is the best thing that can happen to you. Keep buying systematically.

    11) If you’re older and you’re living off a well-diversified portfolio that you’ve examined from about a thousand different angles during your working years – keep calm and carry on.

    12) Lastly, critically evaluate what you read on FIRE blogs for making life decisions. I love this one and it has absolutely changed my life in some respects. Just realize that many other FIRE bloggers are better understood as entrepreneurs than truly retired working Joe’s that have to live off of a portfolio in reality. It’s relatively easy to be preaching 100% equities, for example, for people whose side income pays the bills in real life.

    There, life’s unsolicited wisdom in 12 easy bullets.

  • Mark May 21, 2022, 12:50 am

    Thanks for posting this article.

    I decided to retire on 1/14/2022 at the high point of the stock market. I agree that the stock market will go up and down, and over time it has shown a good return. I felt that there would an adjustment coming when I retired. Everything was too high with stock prices. I will be delaying taking social security till 65. I will be 62 next month. My expense ratio is 2.5% of my net worth. My strategy for funding the expenses was thru interest, an IRA fund that had high dividend yields, and rest in cash for the next year or so. After that I would fund my expenses from a small 401K plan so hopefully the stock market would have recovered. I am keeping my taxable income low so I can get reduced health coverage until 65. I will change the major 401K plan to an IRA account, and have time to decide where to move it to when I hit 65. I have it under a life style fund back dated for retirement in year 2020 which is diversified and has more conservative investments. The hope that will reduce the risks. I am down 11.5% this year so it appears I am doing ok, and not much as the overall market. I hope that it does not down too much more.

  • Dawn May 21, 2022, 3:53 am

    I’m ok with it all. 57 semi retired still doing bits of work. Not living of stash yet.. just some rental income.Kinda relieved that bonds funds might be back on the horizon as a investment option .been keeping out of bonds since 2014. Probably might up my equity allocation a tad but I so agree with MMM it’s time this happened. Nothing can keep going on for ever it needs cutting back once in a while for it to re set itself and new stronger growth to burst through . Like prunning an over grown out of control plant!.

  • Bryan May 21, 2022, 4:07 am

    In the words of Warren Buffett: “The best thing the average investor can do is buy a low cost index fund such as the S&P 500 through thick and thin, especially thin.”

  • Codefreeze May 21, 2022, 4:07 am

    > find enjoyable ways to create value for others that happen to produce money for you as well

    While I’ve done well in my career, this is something I seem to consistently fail at. Help please MMM! :)

  • Chris May 21, 2022, 4:49 am

    One of the best explanations of the stock market I’ve seen. I’ve often tried to explain it to people but have had trouble explaining PE ratios and other stock ratios, but I think BRM just about sums it up.

  • John May 21, 2022, 5:49 am

    Mr. Mustashe, I think you are overlooking one very important thing. Last 200 years ( biggest bull market ever) is what’s actually very abnormal. Normal is actually the extreme bear market. Last 200 years was possible due to single largest carbon pulse, bonanza of very low cost energy subsidized by one time, non repeatable subsidy from million years of carbon deposit. Now that is going away, a fundamental paradime shift. No, renewables will not be able to fully replace the carbon pulse. Not even close. Expect bear market to be the norm (within perspective of our FED hell bent on printing money to oblivion and causing hyper inflation), not the bull market.

    • Mr. Money Mustache May 21, 2022, 8:26 am

      So John, you are telling us that the entire Industrial Era was a temporary blip and the boom years are over, and it’s time to get ready for the Doom Years, which are the true natural state of humankind?

      You do realize that people have been saying this in one form or another every day for the past 200 years, right?
      And if the theory is correct: should we try not to our incredibly prosperous lives because none of this is real?


      (p.s. as an engineer I can definitely throw down in the battle of numbers on why renewable energy – even solar power and battery storage ALONE is more than enough to completely dwarf the energy wealth we have enjoyed during the fossil fuel era. If energy correlates with human prosperity, things are about to get crazy good!)

      • Bradlinc May 21, 2022, 2:37 pm

        I know it is a bit outside the scope of this site but I would like to see how renewable options can dwarf fossil fuel options. I am interested in your analysis as I have heard both sides of this argument before and find my self confused.

        • HeadedWest May 21, 2022, 3:56 pm

          This would be a great thing to see. I do invest in index funds for now and am doubling down while they’re on sale.

          Sometimes I worry that, when the working age population peaks and starts declining (projected to happen around 2050 or 2060) the economy and, by extension, the market won’t grow at the same rates as in the past.

          I know there are others who share this concern. If someone could convince us that renewable energy is going to send per-person productivity skyrocketing up, it would be a big relief.

      • ElbowWilham May 22, 2022, 10:12 am

        I’d love to hear you debate real geologists and energy engineers, all who say ‘renewables’ can work, but will require a huge decrease in our standard of living. See Art Berman for starters…

        The Fracking revolution is over. We didn’t invest enough in nuclear. Its not clear where we go now. The next 20 years will be interesting, that’s for sure.

      • Laura Sonnier June 1, 2022, 7:36 am

        Yes! Please do an article on this!

  • Jmac May 21, 2022, 5:49 am

    I’m coping with the downturn by finally getting off my ass and planting my garden and putting up a clothesline, ie- getting off the couch and doing real things.

  • Joe G May 21, 2022, 6:03 am

    “By raising interest rates, the central bankers put a slight drag on business spending, consumer borrowing and stock market exuberance”

    That’s a polite way of saying the Fed is trying to create a recession, which will destroy jobs, which will lower aggregate demand and also make labor cheaper for employers. That’s the ugly truth about the fight against inflation. It’s impossible to fight inflation without causing mass unemployment and misery.

    • Mr. Money Mustache May 21, 2022, 7:31 am

      I agree with you somewhat – they are successfully cooling our economy because when you run it too hot, inflation runs out of control which is an even worse outcome. Just like *some* inflation is helpful, some unemployment is necessary – although the US has shown it can be an amazingly low level (we’re at 3.6% right now, while even 5% is considered great and most countries run 6-10%).

      So, we don’t need “mass unemployment”, but we do need enough slack for new companies to form and still find good workers. Just like a grocery store with 10 customers will function better if it has more than exactly 10 cans of beans in the whole place.

    • Axel May 22, 2022, 8:36 am

      This is definitely what’s going to happen in Europe, where the cause of the current inflation is not excess cash but crazy energy and wheat prices (mainly). Wheat because Ukraine is the main exporter within Europe, and energy because of the reliance on Russian gaz and the stupid liberal energy market (the price of a kWh of electricity on the European energy market is set to the price of the most expensively produced kWh…) And of course, high energy prices affects everything else.

      Raising interest rates is not the solution to this cause of inflation. The solution is to raise minimum wage, control prices and shift taxes towards very high income earners and big corporations, who made outrageous profits during COVID, thus giving purchasing power back to the general population. Neoliberalism is just a political ideology after all.

  • Bill Martel May 21, 2022, 6:23 am

    Wondering if anything has changed for you over time in respect to the concept of blockchain and cryptocurrency. The smart contracts offered through ethereum based coins seems to fall into the “service” definition of goods and services.

    • Mr. Money Mustache May 21, 2022, 7:56 am

      Well, I was never against the idea of blockchain in the first place – it’s a cool software trick. I’m only against the grand magical powers and narratives that people are attributing to these little chunks of data – people are really lining up with religious zealotry behind it all – especially “bitcoin”.


      What I’m against is the idea that you can buy these things as an “investment” or a “store of value” and expect them to make you wealthy over time. Just like gold, any wealth gains can only be brought about by convincing a greater fool to buy it from you at some higher price in the future.

      If actual software developers are continuing to streamline their blockchain algorithms and find valuable uses for them that help employ and feed people and reduce disease, that sounds great to me.

      But the discussion should be around technical merits, lowering energy consumption, and so on rather than overthrowing central banks and creating a revolution where all the problems of the old elite guard crumble away and a bunch of chiseled 28-year-old bros in Miami with Youtube channels about bitcoin and Lamborghinis now benevolently run the world.

  • Elias May 21, 2022, 6:25 am

    Just came randomly to this post. Really great, brings ‘my’ thoughts to the point! So i am not the only one that is happy about falling stock prices…
    Seem to be that i am a Mustachian now.

  • Emma May 21, 2022, 6:29 am

    I’m old enough to have lived through the tech boom and bust. Worked for tech companies at the time as a consultant. While I remember the craze of stock prices and speculation, I don’t recall inflation being so high. At that time, “they” were predicting a housing bust. Never happened. Interest rates were low at the time, about 4%. Housing has continued on an upward trajectory since then, and then the BoC’s decision to keep rates low fuelled a ridiculous housing market during a pandemic. Irresponsible in my opinion, and sad because we now have a generation of people who are buying never to own outright. It will be impossible. I predict this slowdown will be 2-3 years. This doesn’t bother me from an investing perspective, as I am minding my own damn business and continuing to save. However, harder to do that when cost of living is so high and I have been frugal for years. Happy I got my travel bug out in my younger years. The average “Jolene” never really gets ahead. The system is rigged against the middle earners.

  • Rich May 21, 2022, 6:32 am

    This is a great, timely reminder, MMM. Living below one’s means; consistently investing the ‘extra’ in index funds; knowing that a downturn is normal and a great time to buy “on sale.”

    And if anyone is feeling really panicky right now, it’s a sign you may have taken on too much risk. To loosely quote the sage of Omaha, it’s when the tide goes out that you know who’s been swimming naked. Ask yourself “what would make me feel really comfortable in the current environment?” and then go do that :)

    • Nora May 22, 2022, 3:01 pm

      Rich, what a great response. Excellent things to think about. Thank you!

  • Butch May 21, 2022, 7:28 am

    Thanks for another great write-up. Check out this site for extrapolating the future:


    Has more variables to play with than cFireSim and seems easier to use.

  • Dan May 21, 2022, 7:59 am

    I’m curious what your take is on riding out corrections with margin loans. Let’s say in November you had 1000000 in VTI and you need that fixed 40000 for the year ahead. Today, your million is worth 750000. Assuming this is the bottom, if you borrow 40000 at 1.58% as a margin loan, your assets stay invested and let’s say you don’t get back to the million mark until November 2024, having taken a total margin loan of 80000. You’ll have paid $1896 over that time to not have lost 33% of 40k and maybe 20% of another 40k (750k rebounding to 1 mil being a 33% gain over two years in this scenario)

    • Mr. Money Mustache May 21, 2022, 8:19 am

      Yes! That strategy works for me – as long as you use your margin loan very conservatively such that even a great-depression situation won’t result in you being hit with a margin call, I believe it’s a solid way to add some profitable leverage to your investments.

      And it’s not all that wacky: anybody who has a mortgage and yet still invests for retirement is doing the same thing. They are choosing to buy stocks because they know that on average these returns will exceed the interest rate they are paying on the mortgage.

      Similarly, I have a margin loan outstanding right now, from buying a house for a friend last year. Until she buys it back from me (in just a few weeks, amazing timing!), any stocks I buy during this time period are effectively bought on margin.

      (note: this is the SECOND time I have done this margin-loan-house-for-friend trick. The first one described in this article has already paid me back so we repeated the process to get a second house locked in on our street for yet another friend)


    • Pierre June 3, 2022, 7:10 am

      Not really related to Dan’s question but I must ask… Why VTI ? Why not VOO, VOOG or VONG? This is something I struggle to chose between. I slashed out my last individual stock recently and simply split between these four for my tax free accounts. As I reside in Canada I selected VFV (VOO in CAD$) and VUN (VTI in CAD$). Any reason I should favor VTI (VUN) ?

  • Jazzer May 21, 2022, 8:07 am

    I often think to myself “man, wouldn’t it be great if I was able to buy these investments a year or so back when they were cheap!” So every time the prices hit a 1 year low, I think of it as a quick trip back in time. Sure, any money invested in the past year hasn’t done great, but most of my investments WERE bought at a price lower than what is at. I continue to invest anything I can every 2 weeks and am thrilled with the current discounts, especially since my goal is about 6 years away.

  • dlrx May 21, 2022, 8:49 am

    Great article as always!

    I think one thing we can further emphasize is the power of spending flexibility. Lauren touches on it in her response, but I think given that we are Mustachians after all (that can leverage the 6th and 7th levels of safety at any time https://www.mrmoneymustache.com/2011/10/17/its-all-about-the-safety-margin/), it helps to put a perspective on how dangerous these market drops are to retirees. If you leverage your spending flexibility appropriately – not very! Sequence of returns risk is real, but we have the tools to manage it.

    I built a little website myself as well, inspired by Lauren’s cFIREsim, in order to wrap my head around the concept. My favorite spending plan nowadays is Vanguard’s “dynamic spending” approach (https://advisors.vanguard.com/insights/article/spendingguidelinestohelpeaseretireesmarketworries). Rather than spending a fixed percentage of your portfolio, you set a floor and a ceiling each year, and adjust how far you stretch in either direction depending on the level of recession (or level of gain in a booming market).

    You actually don’t need to pull back on spending all that much to get your success rate to 100%. Here you can see a simulation of similar stats used by MMM for the cFIREsim run, but instead of a fixed 40k withdrawal, you have a $34k floor. Just $6k less spending during bear markets and you’re up to 100%, even with a $60k ceiling (spending more in good times):


    I don’t think anyone should always expect 100% using static figures, I just think it’s useful to see it doesn’t take that much flexibility to reap huge benefits.

  • Katherine May 21, 2022, 9:58 am

    What are your thoughts on a portfolio that currently holds 20% of its total in Shopify, bought at its height, so down almost 70% (ouch)? The rest of the portfolio are mostly in Index Funds.

    • Mr. Money Mustache May 21, 2022, 1:10 pm

      Ouch, sorry to hear it Katherine!

      As always, I’m in favor of all index funds, all the time. I treat any individual stock purchase as a bit of gambling, and repeat the mantra “this is not actually a smart purchase and on average it’s just a dice roll because I probably can’t outperform the overall market in the long run”

      So, I don’t know what to do with the Shopify stock but hopefully others will see this and realize it’s not a great bet to quadruple down on any one stock, no matter how convinced you are of the future. Because on average might be right half the time but the cost of being wrong is much higher.

      If you buy the whole index, you get GREAT long-term performance along with much lower risk of the catastrophic drop of one company going out of favor.

    • Frederik June 22, 2022, 6:32 am

      I’m in a similar situation with certain stocks. John Bogle, the father of index investing, used to say: you can’t sit tight if you don’t buy right. I think he means that if you buy a stock without having absolute conviction that it’s a winner, you’ll likely get doubts and ask questions like the one you’re asking right now, either now or sometime in the next 10 years when the stock prices goes below $100.
      I’ve sold stocks at a loss for that reason and moved into the index. Painful, but a sound decision.


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