Index funds protect you against individual stock risk. They do nothing to protect you from overall market risk. In a crash, all stocks go down just some more than others. Here’s a radical idea. How about admitting that I pointed out a flaw in your investment strategy two years ago and it’s playing itself out now.
We’re actually not as far apart as you might think. If you could tell me that markets would never go down more than 20% going forward, I’d be perfectly content to stay in forever, but you can’t.
LOL...WTF?
It's not my investment strategy. Nobody said it's perfect, and nobody said it's a strategy for everyone. Name one "perfect" or "flawless" investment or investment strategy. Even stashing cash in your mattress or putting all of your money in a savings account is risky.
All investments and all investment strategies are risky, they just have varying levels of risk. Low risk = low reward, while high risk = high reward. There are spots in between those two as well.
If I could tell you what the market would or wouldn't do, I'd be a trillionaire. What I can tell you is that the stock market could go down 90%, and if it did I'd still stay the course, as I've done in past crashes and past recessions, which are actually great buying opportunities for me. This isn't the time to get out. This is the time to hold and buy more.
BTW, index funds also protect you from high, unnecessary fees that instead get reinvested. With compounding, that could mean hundreds of thousands of dollar overtime. Index funds also protect you from fund overlap, and also protect you from foolish fund managers that historically underperform index funds over the long run.
I noticed you didn't mention bonds and emergency funds when bringing up "my" strategy. The strategy I have chosen, which isn't mine, is one that calls for:
1. Paying off consumer debt.
2. Building an emergency fund equal to a year worth of expenses in a high yield savings account and CDs.
3. Investing as early, as often, and as much as possible, rain or shine, in a three fund portfolio:
a. A total US stock index fund
b. A total international stock index fund
c. A total US bond index fund.
Choosing an asset allocation for these three, say 30.3% each, then rebalancing once per year regardless of what the market does to keep your chosen asset allocation.
This strategy has worked well for many people, for many decades.
Whatever investment strategy you've chosen, if you get out when the going gets tough, it just means you can't handle the level of risk you've chosen and you must go for a less risky and "safer" approach and you deserve the mediocre returns you are going to get in the end from that safer strategy.
Good luck to you!
