I can’t believe 6 months have flown by since my last blog post! Life has been absolutely crazy for my family and me, having just retired at the end of last year, moving from California to Texas, selling our California home, moving again from an apartment to our new home, and finally settling in and acclimating to the new area. It was exhausting for me to type out those life events just now! Suffice it to say, I’ve been busy as usual. Blogging takes a surprising amount of time to plan and write out content, and I didn’t want to post something just for the sake of posting.

Anyway, the dust has settled for the most part in my personal life for the time being. However, the world economy has really hit the breaks this year, taking most of us by surprise. With out-of-control inflation coupled with the Fed raising interest rates at break-neck speed, investors like myself have really taken a huge financial hit all of a sudden, scaring me into taking action. Read on to see if you could benefit from doing the same!

Thinking Long-Term

One of the worst things investors can do right now is panic. Personally, my net worth has plummeted approximately $1.7 million this year. While it’s painful to watch, remember that the stock market historically returns a yearly average of 8-10%. Yes, that’s an average, which takes into account market corrections such as the one we’re experiencing today. So think of the big picture. Once you do, perhaps you’ll start seeing the positive side of this downturn – a buying opportunity!

Investing When Times Are Good and Bad

Traditionally, investing as much as you can, as early as you can, and as often as you can is a very successful strategy. Hence my love for auto-investing in stocks, which takes care of all of that automatically!

Auto-investing plays a huge role in my wealth-building strategy. And just because the stock market has been on a downward spiral doesn’t mean we should slow or stop our investments. Quite the opposite should happen, in my opinion. As stocks get cheaper, I see a much higher growth potential for my portfolio. As Warren Buffet says, “Be fearful when others are greedy, and greedy when others are fearful.”

Contributing to our $1.7 million net worth drop is our extremely high expenses this year. And because of our expenses, which have mostly gone towards home improvement projects (e.g. pool, motorized shades, custom closets, solar panels), appliances, and furniture, we haven’t been able to go back to previous years’ $5,000-per-week auto-investment rhythm. Nevertheless, we’re currently at about $3,200-per-week, which will amount to about $166K auto-invested for this year.

Tax-Loss Harvesting

Owing Uncle Sam a ton of taxes means earning a sizable amount. That sure was the case for me when I sold my California for home for nearly $1 million over asking price earlier this year. Timing of the sale couldn’t have been better because we entered into contract just 1 week before stocks began their downward trend!

Because of the large profit from my home sale, I’ve been paying large estimated tax payments (in the tens of thousands) to both the state and federal level to avoid an oversized tax payment next year, as well as avoiding a penalty for owing too much to the government. But, now that the stock market has taken a turn for the worse, I’ve been tax-loss harvesting some of my losers and reallocating them to index funds.

Tax-loss harvesting helps me in 2 ways:

I force myself to sell individual stocks and trade them for index funds, diversifying my portfolio.
By selling stocks for a capital loss, I get to reduce the capital gains from my home sale. This means I will owe less to the government this year.

Diversifying

Another Warren Buffett quote goes, “Only when the tide goes out do you discover who has been swimming naked.” In other words, when stocks take a turn for the worst, that’s when many people realize how important it is to have a diversified portfolio. Unfortunately, the damage is usually done before people are able to reallocate their investments.

Personally, I have always invested in real estate to diversify my portfolio. Earlier this year, I entered into contract for 2 more new constructions. At the time, the builder estimated it’d take 18-24 months to build them. Hopefully that gives the Fed enough time to stop raising interest rates and home prices will resume their upward trend.

Additionally, I am looking to resume my flipping business in the coming months. If any of you cash-rich readers are interested in partnering with me, feel free to contact me! I’ll be happy to share my expertise and profits.

Sticking to a Budget

I’ll be the first to admit that I’m not a great budgeter. I roughly know how much we spend per year, but income and expenses can vary quite a lot year-to-year. Nevertheless, it’s important to go back to the basics, especially in uncertain economic times. Here are some quick tips:

Be mindful of frivolous spending. Are you buying something that’s needed or wanted? Know the difference.
Don’t buy things just because they’re on sale.
Think about the true value of the item you plan on purchasing. How often will you use it? Will you use it 6 months from now?
Buy in bulk when possible.
Cooking at home is cheaper than eating out. It’s usually healthier, too.

Predictions of the Economy

As the Fed stated, they plan to continue to hike interest rates, which means rates will continue their ascension into outer space. But I don’t think rates will continue much higher for much longer. Sure, rates might remain above the 5% mark for a few years, but I am confident the economy will bounce right back as it always has. And when the economy bounces back, the stock and housing markets do too.

So fear not. There is light at the end of the tunnel. My prediction is that the dust will settle in spring or summer of 2023. So I’m looking at the next 6-9 months as buying opportunities. And if you are fortunate to have a job today, or better yet, are even able to continue investing during these times, I am confident you will come out ahead in a few years.

Actions I’m Taking During These Uncertain Times