This Time It’s Different

As I write this (March 18th), the New York Times has moved the phrase “constitutional crisis” off the editorial page and positioned it as its front-page headline. (I would like to say that I beat them to it more than a month ago, but that would be petty.)

So here we are. This time it really is different. Nothing that is happening today in political Washington is like anything that has gone before. And I certainly do not know where it ends (although, as an eternal optimist, I assume that sooner or later — probably later — things will come right again, and democracy will prevail).

In the meantime, your money. I feel faintly ridiculous bantering questions about the pros and cons of Roth investing and strategies for debt repayment when the effin’ house is burning down, people!! But the reality is that even though this time is different, quotidian life does go on and financial decisions must be made amid this maelstrom.

Even though the real world is absolutely in crisis — these times are indeed different — the investing world is not. It is turbulent, yes. But unless you believe that the current political crisis will completely upend the entire American economy rendering it an empty, sad shell of its former self for decades to come, there is no reason to completely abandon the equity market.

Somewhere, sometime, someone certainly told you that investing in stocks was for money that you would not need for more than seven years or so, maybe ten. But with the market generally trending up year after year, it was pretty easy to ignore that. The volatility that we are seeing today is a reminder that when it comes to investing, this time ain’t so different at all.

I read an article the other day about nervous individual investors liquidating their stock portfolios last week as nervous investors are wont to do. (To be clear, the article was careful to point out that there is no evidence that this is a widespread trend.) And before you judge these investors too harshly, I will point out that in at least a couple cases, the problem wasn’t really that they were trimming their equity exposure per se, but rather that they were only motivated to do so now because the market is down.

If you are in or near retirement and anticipate taking withdrawals from your retirement savings in the near term, then you have no business being fully invested in stocks in the first place. This is surely something you knew before January 20, 2025, but chose to ignore because, you know, why leave the party when the bar is still open? (This is why, dear readers, target date funds gradually become more conservative in the years leading up to normal retirement age.) The folks interviewed for this article who were at retirement and panic selling are making an error of timing (always a loser’s game), but their heart is in the right place.

Unlike the much younger people interviewed who were selling because they had invested money in the stock market knowing full well that they needed it in the short term (college tuition bill, house downpayment). What can I say? The rules have never changed: Money that you must have in the next few years, without question or diminution, isn’t meant for the stock market.

Scolding over. What do you do if you find yourself in this pickle of having invested all your eggs in a wildly gyrating basket and you want to get out? There is no one-size-fits-all answer. If you have an immediate bill that must be paid, you take your lumps, sell low and hopefully learn a lesson. But if it is only your emotions that are wrecked by the market’s movements, then perhaps a better approach is to gradually derisk to a more comfortable asset allocation…and stay there. My “favorite” item in the article was the wise gentleman (who considers himself a long term investor) whose plan was to go to all cash now (sell low) and then re-enter the market when it recovers (buy high). I mean, when you say it like that, it doesn’t sound like a solid plan, does it?

Look, I have been pretty glib here about a topic that is anything but. Our country, and the world beyond our shores, is in crisis. I organize my days around protest schedules. This time really is different. But I am not convinced (yet!) that we need to upend the fundamental rules of investment. Rather, now is the time that we need to actually pay attention to them.

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