The Many Benefits of A Crisis
The Many Benefits of A Crisis
I have neck pain. It’s been going on for years. Usually I get sore stiff muscles once a week and a headache. This is the consequence of having a big bobble head on a pencil thin, weak neck. In the throes of pain, I have thought many a time about doing the right thing, and going to see a physical therapist. But then I get a heating pad, take a Tylenol, and put it off further. This week, however, I learned the many benefits of a crisis.
I woke up Monday and the pain was excruciating. I could barely turn my head. After gulping down two Tylenol and two ibuprofen, I struggled through the workday. Hours passed with no relief.
Over the next few days, I tried every trick in the book and yet the mind-numbing pain and stiffness continued.
Finally, I scoured the internet and found a series of neck exercises and stretches (the shortcut to physical therapy if you don’t have time).
Crisis Averted
A few days later, my pain is rapidly receding and I am struck by the fact that not only this severe pain, but likely my years of occasional suffering will be fixed by these basic daily stretches. How could I have been so dumb?
The many benefits of a crisis are that you often come to the other side of the situation smarter, more prepared, and far ahead of where you started. In my case, years of struggle only came to a head (or should I say neck?) when things got so bad that I was forced to take action.
Not only your health, but your money and career work the same way. Sometimes one has to first stumble and fall in order to not only get up and walk again, but leap and bound ahead.
Market Downturns
I don’t think you can adequately judge your risk profile or investing appetite until you have lived through a major market downturn. The many benefits of a crisis are manifest clearly when the Dow plunges. Your investing personality shines clear.
Are you ready to pull the cord and divest, or are you jumping in hand over fist to buy a larger portion of the so-called sinking ship? Are you really confident in that company that you bought a hundred shares of at a premium price now that the market is tanking?
The two major economic downturns I have lived through have taught me valuable lessons. Yes, I am ok with being heavily equity waited. No, I don’t believe in individual stock picking or narrow sector funds.
My investment portfolio today is more streamlined, cleaner, and much more appropriate for my goals because I now know what it feels like to be at the bottom.
Job Loss
Losing one’s job has to be one of the many all-time lows we face as human beings. There is nothing more terrifying than being given your walking papers and not knowing where the next paycheck will come from.
Yet, the many benefits of a crisis ring true in this situation also. How many entrepreneurs out there only started that new business, created that new invention, or launched that new venture because they were kicked out of their traditional role.
Sometimes job loss is the impetus that spurs us on to greater accomplishments.
Furthermore, losing one’s income source teaches many lessons about budgeting and essential needs. If you ever needed proof of the necessity of an emergency fund, this is it.
Could you live without television or the newest mobile phone? This is the chance to find out.
Loss of Property
Have you ever been in a car accident, had your home burglarized, or had your property destroyed by a fire? No matter how heartbreaking, this is just another example of the many benefits of a crisis.
Filing claims with an insurance company will tell you much information about the quality and ease of the company. Get burned once, and you will make sure that your insurer is adequate the next time.
There is nothing like the loss of something valuable to teach you the importance of that which can’t be replaced. Family, friends, children. My experiences with material loss have all generated a deeper and more profound respect for the intangibles of life.
In Conclusion
While I never wish a crisis upon anyone, often these are the situations where you learn the most about yourself and your needs. Whether your health or your money, we all will find ourselves in a crisis at some point in life. if you are lucky, you will come out better than before the maelstrom hit.
How about you? What has a crisis taught you about your economic situation? Did you come out ahead?
I agree 100%. I crisis can sometimes be a call to arms that points you in the right direction. I don’t think I would have ever gotten to where I am now if I didn’t face the devastating impact of a divorce and the financial and emotional toll it took at the age of 40. I had to reassess my life at that point and by doing so found a community that put me on the path I am now. Without that crisis where I was at my lowest I doubt I would be on the path where I am at my highest today. I would most likely have just plodded along unaware of the death by 1000 cuts situation I was in until it was likely too late
Xray, as you have been outlining in your recent posts, mistakes (crisis) is how we learn and grow. I like your recent series.
I appreciate it. The finale in the series will publish this Tuesday.
Hoping you continue to find the subsequent posts of value
Having survived the market crashes of 2000 and 2008, I know exactly what to do in the next one. I won’t even have to pay attention to it to be honest. My lessons have already been learned. And about that neck pain, you should go see a doct ……. wait… 🙂
Good doctor, bad patient!
That same stubbornness to fix your neck pain is probably also the same thing that makes you successful in other endeavors. When it results in good things, we just call it perseverance.
Not being able to get disability insurance has taught me a lot and forced us to live within our means. It has been a great motivator to make us live like residents after I finished training.
TPP
There’s perseverance and stubbornness. I think I have a little bit of both.
I believe if you read stories of many in the personal finance community many of their roads to success started with a crisis. Yours truly included.
What is it with doctors and nurses where they make horrible patients?
We think we know everything.
We do know everything 😛 Your pain sounds like facet inflammation or arthropathy. If it gets to where the exercises don’t work consider some steroid injections. I generally treated patients with cervical epidurals and they work beautifully. Now you have a backup plan.
Over time I’ve come to the conclusion “risk tolerance” is a poorly thought out concept. It implies you have control over loss. Your only control over loss is to judge your return based on risk. In other words If you are going to go for more return than say a T-Bill, you have to understand what you are paying for that return with is risk. I see a lot of portfolios in FIRE land that have too much risk for a given return. This means when the crash comes the risk dominates and takes you down much farther than the return can compensate. For example in the 2008 crash the local high for the S&P 500 was in Oct 2007. Recall the S&P is a widely diversified asset. The S&P has a knowable risk and a knowable return risk = 14.35% reward = 10.53%. A different portfolio consisting of SPY 47%/VBMFX 53% has a risk 1/2 of SPY risk = 7.11%, reward = 7.6%. When 2008 happened SPY went down 50% , SPY/VBMFX went down 25%. To get back to zero SPY must go up 100%. To get back to zero SPY/VBMFX need only grow 50%. This is not trivial. My own portfolio has a risk of 10.1% and a reward of 8.1%, roughly 2/3 of the market risk When the crash came SPY went down 50% and took till 2013 to regain the Oct 2007 high. My portfolio went down 35% and I was even in 2011 and by 2013, I was 18% ahead, compounding my little patootie off. This is the other side of the story, the most important side in my opinion, and this is what you need to know about risk, not some generic emotional reaction or feeling or fear. When you own a portfolio you own the economy. If you own shares in America you own the fact that people get up every day, go to work and turn their labor into value for you. That’s what those shares represent. Just before the second Gulf war happened in 2003 I had 1M sitting in cash I had harvested from the 2000 .com bubble. I specifically asked myself “do you believe in America or not”. My answer was yes so I put the money in SPY. I later learned something about the efficient frontier and properly diversified.
I started investing in the 70’s and have been through a lot more than 2 crashes. I started investing before Vanguard was in existence. The old saw “stay invested” is true. But also with every crash comes a recovery and excess risk prolongs the recovery.
With regard to jobs I think you bring up a great point. An employee off loads their risk on the employer. They go to work and do a job and expect a paycheck. An employer on the other hand has to balance debt, investment (like property) cash flow, taxes, insurance accounts receivable, and make sure there is enough left to pay you that paycheck. I was the employer for 25 years. My employees never missed a paycheck. This is what is so disorienting about loosing a job. Suddenly you assume your own risk. Suddenly you become “the employer”. It’s a whole different smoke than being the employed. This is also what it feels like to be retired. In retirement YOYO “your on your own”. You assume your own risk. In employment you may have a caviler attitude about risk “I think I’ll go 90% stocks 10% bonds because I like that return” You are pretty much doomed to failure IMHO because you are paying too much risk for too little return. In employment you have your job to fall back on if your attitude is arrogant. In retirement your hosed . All of this stuff is knowable. I know it so that’s proof it’s knowable. You can buy it or not, your choice. I think understanding risk not just understanding how you feel about risk is what is necessary. What it will mean is a different understanding of portfolio management than the 4 x25 rule, which in my analysis is a waste of time. What it means is planning for contingencies, the same as any business owner. What it means is tax planning. What it means is a bigger pile and a smaller SWR. What it means is working a few extra years for a granular well defined plan that will carry you through, with multiple abilities to fix things on the fly. Some things can not be fixed on the fly like RMD. Once the government gets their hooks into your cash flow you are theirs. Pre-tax money is a huge pile of revenue just waiting to be plucked. You only get to keep what the government says you can keep. I’m in the middle of all this working through the details.
Got to pay your dues if you want to sing the blues
And you know it don’t come easy
You don’t have to shout or leap about
You can even play them easy
Forget about the past and all your sorrow
The future won’t last
It will soon be your tomorrow
George Harrison – It Don’t Come Easy
Gasem. I’m always impressed by your long, detailed (and often funny) comments. I was going to offer a cervical ESI (not Earn Save Invest, but epidural steroid injection) too, if things worsen. Or maybe a cervical facet mbb for possible RFA. Btw, I totally agree with your point on risk tolerance. It does seem like many people in the FIRE community have a higher risk tolerance than they probably should. I think the only type of people who should be in a ultra high risk tolerance profile are investors who are: young, have a long time horizon, still working and making a lot of money, and can afford to lose a significant amount of their portfolio and not be terribly affected and therefore able to stay invested. I fit this demographic profile, thus I have a pretty high risk tolerance.
It’s really easy to have a high risk tolerance in the last few years of this market.
So many good points here.
The neck is better…so no injections for me.
I agree with your analogy. Being a business owner, it is much less of an issue managing my money or my own retirement. Contingency planning is built in.
Often times, it takes a crisis to instill change. Whether it’s a job loss, market crash, or adverse health event, only when we are faced with no other choice but to change do we do it. Change often requires a level of activation energy which is only reached in times of crisis. The great thing about blogs is we can learn from each other’s crises and make the necessary adjustments to our own lives.
Very true about the blogs. Great to learn from someone else’s crisis!
You are so right. My path to FI started by being fired. Even though it turned out great (upcoming post…), we reacted in many ways that we would not have. And they all pointed us to financial freedom.
Being fired led to FIRE. Not bad!
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