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Jamie Dimon tells Wall Street that the good times are “as close as they get” – minutes after his bank recorded the biggest profit in its history (1).
When the man who runs America’s biggest bank celebrates a record $21.2 billion quarter and warns you in the same breath, it’s worth pausing. He added, “We don’t know how long this will last.”
I was a stockbroker during the Black Monday Crash of 1987, and I have traded through the dot-com bust, 2008, and 2020. All four of them taught me one thing: alertness and panic are two very different things.
Damon is not alone. Berkshire Hathaway – the company created by Warren Buffett – has a record $397 billion in cash, the largest pile ever (2). In a recent CNBC interview Buffett said, “It’s hard to find value when everyone is liking to gamble” (3). According to one estimate he made famous, stocks are more expensive than at almost any time in history (4).
The warnings are real. Panic selling their retirement is not the solution for them. Here are five moves instead.
1. Don’t do the one thing that will definitely lose money
In every recession, the same story plays out: Scared investors sell at the bottom and miss the rebound. It feels safe. This is the most expensive step there.
Mathematics is cruel. A $10,000 stake in the S&P 500 would grow to nearly $71,750 over 20 years by 2024 — but miss just the 10 best days and you’ll end up at $32,871, less than half that (5).
Here’s the trap: Seven of those 10 best days occurred within two weeks of the 10 worst days (5). Those who run away in panic are the ones who miss the bounce.
2. Build a cash cushion so you never become a forced seller
Panic selling is usually caused by need. A bill comes in, there’s no cash, so you sell stocks in the downturn to cover it. The solution is to set aside cash before the storm, not during it.
Keep a year or two of living expenses in cash so that a bad market never hurts your hands. Even Buffett’s Berkshire has its record stack (2) – Dry powder is a strategy, not a failure.
One of the easiest ways is to switch to a better bank account. If you’re still at a traditional brick-and-mortar bank, you could be paying monthly checking fees while earning almost nothing on your savings.
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3. Right size your risk before the market does it for you
A 30-year-old man can survive an accident and barely experience it a decade later. Five years after retirement, the same accident could reset your entire timeline. This is sequence-of-return risk – the quiet killer of retirement plans.
If you haven’t rebalanced as you’ve aged, you may have more stock than you realized. That’s exactly when a market at record highs becomes dangerous.
One idea to consider: Get a second set of eyes. Talk to an expert, especially if you’ve got big profits to protect.
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Quick gut-check – If your money advice is coming from random online influencers, you’re playing a dangerous game. I’ve been a CPA since 1981 and have been writing about money since before the Internet existed. Sign up for the free Money Talks newsletter and get time-tested expert advice.
4. If you’re 62 or older, know your options
If you’re relying on your savings to supplement your retirement income, and most of us are, don’t forget that there are other ways to generate income, at least if you own a home.
One option that people overlook is tapping home equity with a reverse mortgage. They’re not right for everyone – there are real costs and it reduces what you leave to your heirs – but for the right household it’s a great way to get extra income without draining your savings.
If you’re 62 or older, you might want to check this out. a reverse mortgage Allows eligible homeowners to convert a portion of their home equity into income – while maintaining ownership of their home.
Use your reverse mortgage to cover everyday expenses, build an emergency cushion, or make home improvements.
See how reverse mortgages work and whether you qualify.
5. Ignore destruction and propaganda
For every Dimon who calmly understands the risks, there are hundreds of online voices shouting “sell everything” or “the dollar is collapsing, put it in gold.” Both extremes drain your pockets.
Dimon said the current mood reminds him of 1972, 1986, 2000, and 2007 – the years before the tragic crashes (1). But notice what he didn’t do: He didn’t ask anyone to finish his portfolio. He asked them to pay attention.
I’ve always put it another way. When the market starts getting overvalued, as it is today, I don’t always adjust my portfolio, but I do adjust my expectations.
This is what four decades of tracking the markets has taught me: A crash is always evident in hindsight and impossible to predict. No one rings a bell at the top – not even Jamie Dimon, who is careful to admit he doesn’t know when.
So don’t try to be a hero. Set your cash limit, right-size your risk, and stop refreshing your account balance every morning.
The goal was never to time the market accurately. It was about creating a life you enjoy, no matter what the market does next.
Source: Luck (1); cnn business (2); cnbc (3); The Motley Fool (4); CNBC/JP Morgan Asset Management (5).