Market crashes are black swans. No, not those black swans, unpredictable events beyond what is normally expected with potentially severe consequences. You can probably name all of the market crashes in the past 100 years since they have had an impact on the way we invest. On this episode of Retirement Answer Man, we’re learning about market crashes and the lasting impact they can leave on our psyches. 

Market crashes can leave you with emotional scars

Even though market crashes are not as important to worry about in retirement as bear markets. The real problem with market crashes is the effects they leave behind. Whereas bear markets are long and drawn out, market crashes are sudden and devastating. Similar to a car crash, a market crash can leave emotional scars. We haven’t had many market crashes in recent history, but the ones we have had have left an imprint on our collective memory. 

Market crashes are certainly memorable

You may have seen the long-lasting effects of the 1929 market crash on your parents or grandparents. It changed the way people thought and behaved. The ‘Black Monday’ crash of 1987 drove the market down by 23% in one day. The NASDAQ fell from 5000 to 1000 during the bursting of the dot com bubble in 2001-2002. And of course, more recently, there was 2008 of which many of us still haven’t recovered. 

In retirement, market crashes can be even more traumatic

Does your retirement plan prepare you for a market crash? In retirement, we need to build a system to where a market crash won’t derail our lives. That system should give us enough emotional currency to help us understand that we will be okay no matter what. You don’t want to let a market crash derail your decision making. Does your financial plan account for market crashes?

How would I design a high school finance course?

One listener who is a high school teacher asks, how I would design a financial literacy course for high schoolers. This was a fun question to answer. I hope that financial literacy becomes a course that every high schooler can take. There are several fabulous resources out there that teens can enjoy and learn from. I don’t necessarily think that teaching stock market training is as important as building healthy financial habits. Find out which resources I recommend by listening to the Listener Questions segment of this episode.

OUTLINE OF THIS EPISODE OF THE RETIREMENT ANSWER MAN

WHAT DOES THAT MEAN?

• [2:20] What is a black swan?

HOT TOPIC SEGMENT

• [3:30] Let’s talk about market crashes
• [9:37] In retirement market crashes can be even more traumatic

LISTENER QUESTIONS SEGMENT

• [11:10] A listener correction about Social Security and COLA
• [13:08] A question about all Roth contributions
• [16:20] How would Roger design a high school course?

SMART SPRINT SEGMENT

• [21:40] Increase your savings rate (or lessen your spending rate) by 5%

Resources Mentioned In This Episode

BOOK - Atomic Habits by James Clear

BOOK - The Richest Man in Babylon by George Clason

BOOK - The Black Swan by Nassim Nicholas Taleb

Episode 306

Rock Retirement Club

Roger’s YouTube Channel - Roger That

BOOK - Rock Retirement  by Roger Whitney

Work with Roger

Roger’s Retirement Learning Center