Will the Stock Market Crash This Year? Here Are 3 Reasons Why I Don’t Care

Investors can learn a lot from George Costanza.

When I hear all the chatter about the “impending market crash,” I can’t help but think of one of my favorite scenes in “Seinfeld” in which Geroge comes to the realization that he should do the opposite of whatever his gut is telling him.

Jerry: If every instinct you have is wrong, then the opposite would have to be right.

George: Yes, I will do the opposite!

When it comes to trying to time the market (sell before a crash), we can all learn a valuable lesson from George.?If we believe the market is about to crash, we should ignore that feeling because it’s probably wrong.

I’ve written in detail in the past ?about how market timing is the easiest way to lose money in the stock market. Successfully timing the market requires you to nail the timing on two events;

1. When to pull your money out of the market.
2. When to put your money back into the market.

Odds are your timing will be off on one or both of these events, and you’ll lose money.

We all accept that market timing is a bad idea, but everyone wants to find out for themselves.

In this article, I detail four reasons I don’t care if the stock market crashes and provide insights for you to consider whether you should make changes to your portfolio or not.

Three reasons I don’t care if the stock market crashes

1. A stock market crash won’t impact my life in any meaningful way.
2. I buy the whole market, and the market always bounces back.
3. I am an emotionless investing robot.

As I break each of these down, think about how your situation differs from mine and how that might impact your decisions on whether to make changes to your portfolio.

#1 — A stock market crash won’t hurt me financially

A stock market crash could never financially ruin me. The only thing that could do that is a market crash accompanied by losing my income.

If my investment portfolio got permanently cut in half tomorrow, it wouldn’t impact my financial security. The only thing that could do that would be a loss of income that happened at the same time as a market crash.

My wife and I are in the fortunate position to have three sources of income that could cover our basic living expenses;

1. My day job.
2. Her day job.
3. Our side business.

Even if we lost two out of three sources of these income sources at the same time the market crashed, we would have no problem paying the bills. More importantly, my wife and I both have very high levels of job security.

The most important thing to consider when deciding how much of your money to invest in risky assets like stocks is your job security and how correlated that job secuirty is to the markets.

• If you work in the financial services industry, your income is highly correlated with the market, so it might make sense to rebalance into less risky investments.
• If you’re a tenured professor, your income is not correlated with the market, so you can afford to take on more risk.

My wife and I each have income that is not correlated with the market, so even if the market crashed tomorrow, we would be fine.

Stop and consider; What level of job security do you have? How correlated is your job with the markets and economic conditions?

If you feel you have weak job security, then it might make sense for you to sell off some of your stocks and put that money in something less risky.?This is not market timing; it’s risk management.

#2 — The market always bounces back

In the middle of the market crash at the beginning of the pandemic, I wrote an?article ?titled “What happens after a crash?”

In the article, I discussed the results of?a paper ?in The National Bureau Of Economic Research titled “Negative bubbles: what happens after a crash?”?In the paper, researchers studied stock market crashes from over 100 global stock markets from the years 1692–2015.

In this data set, the researchers observed more than 1,000 “stock market crashes” where a market experienced at least a 50% decline in one year.

During these stock market crashes, they found two clear patterns.

1. Stock prices tended to increase dramatically following crashes.
2. Investors reduced their allocation to stocks and missed out on those increased returns.

Translation;

The stock market always bounces back after a crash and investors who get out of the market miss the best returns on record.

The last year has been one of the most extreme examples of this. Many investors got out of the market at the beginning of the pandemic and missed one of the best years the stock market has ever had.

• Since I invest in?index funds , which simply track the stock market, I know my investments will bounce back.
• If you’re invested in individual stocks or funds that invest in a particular sector of the economy, you don’t have that same guarantee.

Stop and consider; how much exposure do you have to individual stocks or sectors of the economy? If the top companies in your portfolio went out of business, how would that impact you?

#3 —When it comes to investing, I’m a robot

So far, I have laid out a pretty air-tight case for why I don’t care if the stock market crashes.

• I don’t need the money right now.
• I have multiple sources of income and high job security.
• I invest in the entire market, and after a crash, the market always bounces back eventually.

There is one final thing that could screw things up for me in the event of a market crash; me.

You could have great job security and the most well-diversified portfolio of index funds possible. Still, if you are the type of person who might freak out and sell your investments during a market crash, you need to rethink your investment allocations.

To borrow an overused quote from Mike Tyson;

“Everybody has a plan?until they get punched in the mouth.”

I have always believed that I am completely emotionless when it comes to investing. But I am only 32, which means I never had the opportunity to test that theory until 2020. I was 20 and had no money in the market during the market 08–09 market crash.

I believed that if I were invested during that time that I would do the rational thing to do and increase, not decrease my investment in the market during that crash.

In 2020, I was finally able to test that theory. From February to March, the S&P 500 lost roughly a third of its value. We were heading into the first lockdowns, and we had no idea just how bad COVID-19 was going to be.

It was a scary time.

During that time, I had one thought; how can I get more money in the market?

I never once thought about selling, only about buying.?That is the final and most crucial reason I don’t care if the stock market crashes again in 2022. I look at it as a buying opportunity.

Stop and consider; Do you think you could stomach a sudden 50% drop in your investment portfolio? If you believe you would sell during that type of market crash, that might indicate you have too much invested in the market.

The next market crash; “when” not “if”

Make no mistake, there will be another stock market crash. We just have no idea if it will be in 10 days or 10 years.

Don’t try and time the market. Selling investments based only on your hunch that the market is about to crash is a bad idea. Remember what George would say, and don’t listen to your gut.

Do rebalance your portfolio based on your personal circumstances. If your job security is highly correlated to the market, your portfolio is poorly diversified, or you don’t have the stomach to ride out a market crash, it might be time to think about cashing out some of your stocks and putting it in something less risky.

If you found this article useful, you may want to enroll in my free “investing-101” course available right here .