Wealth and Health: How to get better sleep during a market correction
Eat better or sleep better?
I remember in my undergraduate days when my favorite accounting professor would repeatedly ask us the same question in class as he introduced new concepts, “Do you want to eat better or sleep better?” After graduation and as I navigated through the working world over the years, I often found a lot of decision making, risk measures, and cost-benefit analysis ultimately boiled back down to this simple question. This post will suggest ways to eat better and sleep better -essentially to manage your wealth and health particularly in the next market downturn.
Saving and Investing
As we work, save, and accumulate wealth, we are required to invest our savings to avoid inflation eroding our hard-earned dollars so that we can eventually reach FIRE (financial independence, early retirement) often fondly known as FU money and have money working for us. Yet I have found that the more we have accumulated, the more difficult many people admit to getting a good night of sleep because of the wild wide on the market index.
Currently as of this post, the PE ratio of the S+P 500 index indicates the overall market is overpriced. Stronger earnings are required to maintain the current price levels. A lot of people are holding on to cash waiting for the next big sale, others may be shifting their funds into safe havens, while the rest adopt a wait and see approach.
Regardless of your position, ups and downs are the nature of the market. We can’t NOT invest in the index, because it is the single most diversified investment vehicle that requires very little financial acumen that provides outstanding returns over the long run –beating inflation and your house returns I might add. So what’s a bloke gotta do who just wants to come home from work, have a nice meal, and sleep well at the end of the day?
Let’s assume for a moment, that like most people you are heavily invested in the index (eg more than 50% of asset mix in index funds) and are on a steadfast approach to maintain your asset mix NO MATTER what the market does to avoid realizing capital losses. So when the market corrects by 10-30%, you grind your teeth, log off the trading account, and try to keep yourself preoccupied.
Will you still be able to fall asleep during a bear market?
Option 1 – Get your “When Everything Goes to Hell Fund” ready
This is where I recommend having a stash of “when everything goes to hell” fund. This fund could be in a high interest savings account. It may represent your 6 months of living expenses, or it could be more –if you wanted to make sure you could keep buying through the downturns. No matter what happens in the wild market, you know you will be able to sleep at night because your net worth will not go to 0. You will fall back on these funds. This fund helps you sleep better at night.
Option 2 – Go on vacation.
Take some funds from “When Everything Goes to Hell Fund”. This may seem counter-intuitive as most people want to cut back during downturns, but we should in fact be doing the opposite to common belief. When the economy dips, things start to go on sale because nobody is spending. That’s when THE market, vacations and flights are on sale and a great opportunity to cash in on those deals. I can’t deny that lying on an exotic beaches somewhere, warm and mild does help me sleep a lot easier than in the dark cold northern hemisphere and staring at all those red arrows in front of my screen on top of a gloomy winter.
Option 3 – Take up a hobby and work on it rigorously.
Maybe it’s starting a blog like this one, learning a new skill, teaching someone a skill, or starting a side hustle. Whatever distraction you have, the important thing is to make a positive difference to the greater good while distracting yourself from the market downturns. This will bring greater fulfillment and purpose in your life while waiting for a trough to pass.
Balancing wealth and health
So the next time the Big One comes, fret not, and remember these 3 key steps on the road to better sleep. The key to these above recommendations is to buy you time to ride out the waves. We can’t stop a market from undergoing its natural course of correction, but we can take measures to ensure we can still get on with our lives when that happens. Preoccupying ourselves during the day with plans in place will help us to sleep soundly throughout the night.