05 Sep A Tale of Two Recessions

My wife and I find ourselves telling people how lucky we were to be starting out right in the middle of the great recession, we’ll receive funny looks at first glance but in reality, we had a great privilege and opportunity handed to us. In late February of 2008 I quit my job in big box retail after seeing the writing on the wall and they were going to go under.  I came very close to going to a competitor that also eventually went out of business.  I had decided to try and get into more traditional business instead of a retail setting, it felt like I could make that step with my former two titles I had held of Assistant Store Director and Senior Sales Executive.  In May of 2008 I started my job where I still am to this day a couple of promotions later, and my wife was finishing up college and came out immediately hired by a major food manufacturer as a Food Technologist.  Long story short, we were about to get married and making right around six figures combined, with only her student loan debt and her car debt, and two jobs that appeared to be very solid and stable.

When you ask anyone about the great recession, I think the first thing that comes out of their mouths was the real estate crash, followed by the banks and financial institutions collapse.  The two of course go hand in hand and we were fortunate to take advantage which you can read in depth about in my debt story post.  In short we were able to buy a house for very little, paid way less in PITI than we would have in rent, and we sold the house a few years later clearing over $30k which allowed us to move into our likely-forever home which you can read about in my posts about buying our first and second house.

Our goal in 2010 when we got married was to pay off my wife’s student loan debt faster than the payoff schedule, but we also wanted to enjoy our first year of marriage and weren’t interested in living like college students at the time.  I had just finished paying off debt and living on rice and beans for nearly two years and was ready to take a break from being gazelle intense as Dave Ramsey has effectively coined.  We didn’t dive off the deep end or anything, we proceeded to pay off something like $30k worth of student loans and a car in four years which we probably could have done in eighteen months but the interest on the student loans was so low, we decided to go on a few trips and didn’t regret it one bit.

What we should have done, in looking back is recognize the ability we had to pay down debt faster than its scheduled payoff time line, invested in ROTH IRAs and had fun with what was left over.  At the time we understood the basics of investing but because Dave Ramsey said payoff debt first then invest, we listened with the exception of getting my wifes 401k match amount, we did have that in place.  I didn’t have a 401k so we missed out on investing from 2010-2014 when we first began funding ROTH IRAs.  Since 2014 we’ve fully funded ROTH IRAs through a combination of dollar cost averaging and in some cases, we were sitting in cash for some reason or another and then dumping it in time for the tax deadline to hit.  For the most part, we made our contributions about once a quarter in somewhat equal amounts.  While I’m glad we invested and surely those accounts have grown, we paid a hefty fee to invest with our advisor between 2014-2018 including a front load fee of 5% and 1-2% ongoing assets under management fee, ouch.  In 2019 prior to making much of our contributions to our ROTH IRAs we fired our financial planner and that was the beginning of our relationship with Vanguard and self-managing our portfolio (see more in a later post).

In 2020 Covid19 hit and sent the markets crashing by 36% over the course of just a few weeks.  I watched our account balances sink lower and lower, just nine months after firing our financial planner.  Part of me wondered if we had left our money in their careful hands, would we have taken such a blow? I’ll never know the answer to that because they would have traded my money in and out of various funds during that time potentially costing me even more money that the actual losses sustained.

This post is titled a tale of two recessions, and I assure you we took full advantage of the 36% drop, with a little bit of luck, here is how it played out.  We had only made $1,000 in contributions to our 2019 ROTH IRAs.  It should have been closer to $6,000, but we had bought a rental house in March of 2019 and I think we were sitting heavy in cash just in case anything crazy came up and we planned to dump our ROTH money in our account in time for the tax deadline.  In August of 2019 we had cleared the rental hurdle but I began considering a business purchase and we stayed in cash for that purpose, and still planned to put it in our accounts in time for the deadline knowing we can pull the principal back out just in case we ended up needing it.  Needless to say based on above we had not contributed to 2020 either but would at some point pending our business decisions.

When the market plummeted in late March, we were cash heavy, I think we were sitting on something like $70k in cash when we normally only have about $30k on hand at any given time.  I didn’t intend to time the market, I just kept watching it drop lower and lower and on the that day it dropped 36% so I immediately put in $6,000 into each of our ROTH IRAs for 2019 which went directly into VTSAX.  While I was logged into my wife’s account, I noticed her traditional IRA which contained a rollover of a 401k and pension lump sum payout from her former employer, sitting in cash.  I errantly had forgotten we moved her money to cash in late January due to a hang up with her money moving from our former advisor to Vanguard.  While we hadn’t moved the funds to cash at the peak, it was pretty dang close, and I purchased just under $40,000 worth of VTSAX at a 35% discount effectively (albeit completely accidentally) and celebrated.  The way I look at that transaction is that it essentially allows us to pretend we began investing back in 2012 instead of 2014, it’s like two additional years’ worth of investing added by one accidental market timing moment.

The next cash infusion we had to make yet was our 2020 contributions to retirement accounts, which we were in too high of an earnings bracket so we put my contribution into a traditional IRA, then immediately rolled it to a ROTH and invested in VTSAX at a 32% discount as this happened about a week after we hit the bottom.  We had to put and leave my wife’s 2020 contribution in her traditional IRA because it already has funds in it, as above, so the same story happened, and we bought there at approximately a 32% discount.  We again look back and feel like we picked up one to two years of additional investment time by making these transactions out of dumb luck and accidental timing of the market.  To summarize, we made $64,000 in VTSAX purchases at a 35% discount!

The final step taken during this recession was dealing with funds that my former money manager had my money in.  I should have dealt with it when we fired them in June of 2019, but I was overthinking the situation and perhaps that turned out to be a good thing.  I left my money sit in their funds this whole time in both of our IRAs.  I began to go to work on selling the mutual funds that were down significantly less than the broader market, for example I sold a fund that was down 18% from its all-time high while VTSAX was down 29% from its all-time high. I sold the mutual fund and immediately bought VTSAX believing that it would have a higher long-term value.  I repeated this process with a few more funds and was stuck holding eight to ten other funds that were about equal with the market at the time, and for whatever reason I can’t and couldn’t stomach selling them at a loss so I waited them out and checked when the market jumped if they broke even. I sold and bought VTSAX, if they dropped, I waited.  At the time of writing I still am sitting on three funds that I wish to sell but am just waiting them out and will sell to buy more VTSAX or perhaps start buying VBTLX since my current allocation is legitimately 98.5% stocks, 1.5% bonds.  I don’t know if my path to selling these old funds was right or wrong, but it felt like it made sense, I’ll never know, and either way we are now allocated as we desire.

While I recognize that many readers may view this story of dumb luck as being prepared with dry powder and being able to take advantage because we had the knowledge.  I truly believe it was nothing but dumb luck and candidly a little bit lazy since I hadn’t figured out how to manage my money once we moved off of the advisor model.  At the end of the day, however, we missed out on the opportunity of the first recession from an investment standpoint, and we weren’t going to miss out on the second one.  We took nearly full advantage, the only thing further we could have considered was putting another $15-20k into a taxable account and buying more, but we wanted to keep cash on hand for our next rental property purchase or business purchase and decided we’d created enough long term wealth inside that two week time period, and who knows, maybe it will fall off again with a retest of the lows and we’ll have a second shot at it.