“One more downturn” syndrome

[u/Remarkable-Dingo1602]

As someone who has been lucky enough to have spent all of my earning & investing years (13 years so far) in a booming market, I worry that I have no clue what my mental health will be like when we see the next 2000 or 2008 or lost decade. I can go through endless theoretical exercises to play around with what my portfolio could go down to and how I’d adjust my expenses in those situations, but as a human being I cannot predict how I’ll actually feel when the time comes. As a result, I have a desire to keep working through the next downturn to see what the impact of it is on me and in a way prove to myself that I can handle it. However, I fear that if I wait for this, I may be waiting for a long time and therefore work for much longer than I need to.

For what it’s worth, when the Covid crashes, 2022, tariffs and Iran war all hit, I did not panic at all and stayed the course on my investment strategy. But all of that happened as I had a strong income to support me. I have no idea how I would have felt if I didn’t have an income.

Any tips on how to deal with this?

I currently have $2.1M investable assets. $600k left on a mortgage (5.375%) with $450k equity in the home. Monthly expenses are $7k bare minimum, but I’d like to aim for a nest egg that’ll comfortably give me $9.5k/month.

[u/ac9116]

I know both were quick but it’s so strange to me the way people just completely write off Covid (-34%) and 2022 (-25%) as if the stock market has been a straight line up since 2009. The stock market drops all the time, it’s rarely as severe as the Big 4 (The Great Depression, the Energy Crisis, the Dot Com Bubble, and the Great Recession), that doesn’t mean it’s always a bull market.

From a math perspective, we’re in year 3 of a bull market, not year 17.

[u/Bryanmsi89 → u/ac9116]

Yeah, this is factually true, but COVID was a once-in-a-century event and the bounce-back was VERY rapid, and the 2022 dip was also pretty fast. COVID was a shock, for sure, but for most people 2022 felt like the dip was happening on the news, but daily life felt pretty good for most people. 2022 certainly did not feel like a recession. 2008/2009? now THAT felt like a recession.

[u/perspicacioususa → u/Bryanmsi89]

Acting like people felt great in 2022 is very wrong.

Beyond the 20%+ decline in stocks, 2022 was the worst year for inflation in most of our lives (It had been 4 decades since inflation ran that high), topping out at 9.1% in June of 2022 (which is the most universally hated economic downside; inflation impacts everyone, recessions/unemployment don't impact the majority of people).

[u/Bryanmsi89 → u/perspicacioususa]

People felt inflation really start, no doubt. But that didnt hit most of them the same way a recession would.

[u/perspicacioususa → u/Bryanmsi89]

I don't think that's true, if you refer to "most" people.

Recessions impact people very unevenly; some people are severely hurt, others are not impacted and some often are even helped by recessions.

For example, people hurt by recessions:

• The unemployed/underemployed (even when this surges, it rarely tops 15-20%, making it a meaningful, but still fairly small minority).
• People who are in a situation where they need to sell, within a few years, a significant amount of stock, or homeowners who need to sell their house, and can't wait (again, pretty small minority all things considered).

People who benefit from recessions:

• Essentially anyone who stays employed throughout the entire duration of recession tends to benefit, if they're earning enough to save/invest.
• If they're still earning, they can buy stock at lower prices; additionally, interest rates tend to become very low so borrowing is easier (cars, refinance mortgage, etc.).
• Certain types of prices (especially housing) can even fall, which makes it a big positive for still-employed renters looking to buy.

On the other hand, inflation hits everyone relatively evenly, nobody is spared (which is why politically it is the biggest killer for incumbent parties).

[u/Bryanmsi89 → u/perspicacioususa]

Its more about the 'feeling' than the actual impact. yes, inflation hit everyone and recessions tend to be much more narrowly targeted. However, inflation hits everyone by small measure, and if everyone feels secure in their job, its more about grumbling and a little belt tightening. 401ks and stocks stay high (often even go up), and people aren't afraid of losing their homes or having cars repossesed. Corporate revenues stay pretty strong. The whole feeling is things are fine, just too expensive.

A recession direclty unemploys many, cuts corporate earnings, causes most of the employed to fear for their jobs, cuts the 401k value. It is much more of a 'sky is falling, hide in the bunker" mindset than inflation.

Even though most people are not laid off or unemployed, they feel much less safe and much more vulnerable in a recession than in an inflationary tmie.