The pursuit of financial independence is not dead. Far from it. In fact, if you are pursuing financial independence, then the current market downturn is great for you while you are still earning money and employable. This downturn would be much worse if you have recently retired and are heavily invested in shares or growth assets.
This is the first serious price decrease in over a decade and will be many investors first experience of sharp losses. Despite the fact that these losses occur frequently. It definitely won’t be your last. And depending how far along the journey you are, you may be experiencing a decrease in net worth of six figures plus.
In the pursuit of financial independence, you would generally be making investments every month. These months you are now buying shares at much cheaper prices than they were just a couple of months ago.
For Simplicity sake, let’s say you are investing in a fund that is priced at 30% below its previous price. $14, instead of $20. And the price remains at this level for two years. Now let’s say you are investing $2,000 every month. Instead of buying 100 units, you are now able to buy 143 units.
Over a two-year period, you have now bought 3,432 units, instead of 2,400 units if the price had neither increased or decreased.
Twenty years later, let’s now assume the price has increased up to $80 per unit. Your $24,000 has suddenly become $275,000. Yet, if prices never decreased in the original two year period, your $24,000 would only be worth $192,000.
Over $80,000 better off in this example all due to a downturn and continuing to invest. This can seem quite counterintuitive to some.
Not only that, but because you didn’t sell when the markets went down 30% you didn’t lose anything. You still have that money intact
This is the importance of buying cheap shares while accumulating and long term holding of growth assets. Shares should not be something you need in the short term so don’t fuss over large drops. It is perfectly normal. In fact, it is good news.
Of course, the dip could be larger, or the recession could be longer. As long as you can keep your job and keep accumulating then it is a great thing. For those who are retired or close to, or have lost their jobs, then this is a terrible time so please always be empathetic towards others. Hopefully they have contingency plans in place.
I don’t write this to downplay the effect a recession will have on people. It will be significant and there will be suffering. As I’ve said before, my job is also not safe, and I am on shaky ground. But I write this for those that do manage to keep their head above water during these times, not to give up on their plans for financial independence.
This is the time, if you can to keep your investments up as much as possible and take advantage of lower prices. Continue with your monthly contributions. Even increase them if you can. Just don’t give up on your aspirations as FI is still entirely possible. What we are experiencing financially is a perfectly normal part of investing.
The information contained on this site is the opinion of the individual author(s) based on their personal opinions, observation, research, and years of experience. The information offered by this website is general education only and is not meant to be taken as individualised financial advice, legal advice, tax advice, or any other kind of advice. You can read more of my disclaimer here