Living with dead money might become a reality we need to accept due to uncertain market forecasts. It’s crucial to adapt and think strategically about our financial future to continue enjoying life without financial stress.
Navigating Dead Money Scenarios
1. When Your Company’s Stock Plummets:
If your company’s stock takes a dive, leaving you with underwhelming Restricted Stock Units (RSUs), you have a couple of options. In a robust job market, consider negotiating for a raise or more RSUs at your next review—don’t wait for recognition, demand it if you believe in your company’s future. Alternatively, if your faith in the company wanes, look for new opportunities, ideally with companies showing robust performance or promising prospects, even if they’re currently undervalued.
2. Retiring at Market Highs or Lows:
Retiring just before a market dip can be risky because it hasn’t tested your financial resilience. If this happens, finding part-time work or consulting can help bridge the gap until the market recovers, which can now happen quicker than in the past. Conversely, retiring after a market crash might be slightly safer; you’ve seen your portfolio’s low and can better gauge if you can handle further dips without steady employment income.
3. Retirement Timing Post-Correction:
I’ve contemplated retiring post-correction, expecting reduced expenses and more government support. However, the unpredictability of investment returns, especially dividends and distributions, makes this tricky. A realistic worst-case scenario would be a further 20% dip in your investments over a year. If you’re prepared for this, retiring might still be a viable option. Also, don’t walk away without negotiating a severance package if you’ve been with your company for a while.
4. Joining High-Valued Startups:
High startup valuations can be precarious. If you join one, like WeWork, which faced a dramatic valuation cut, ensure you renegotiate your stock options. If the startup’s outlook worsens and management won’t adjust your compensation, it might be wise to leave. Generally, the risk of startup stock options outweighs the benefits, except for a lucky few.
5. Managing a Private Business in Downturns:
Private businesses often feel economic downturns acutely. If yours is struggling, cut unnecessary costs and enhance aspects like social media that improve your brand without heavy investment. If your business is stable, consider expanding by leveraging lower input costs or acquiring promising companies at reduced prices. Remember, a business immune to forced closures is invaluable.
6. Venture Capital Investments at Market Peaks:
If you’ve invested in a venture fund at a market high, patience is key as returns might be minimal or negative for a while. I chose to invest in the Fundrise Innovation Fund during a market low, which focuses on AI and offers better liquidity than typical venture funds.
Dealing with Investment Losses
Understanding and accepting potential long periods of no gains is essential. Think strategically about diversification and risk management to avoid major losses that could extend your working years. If investments underperform, consider mentally writing them off to reduce emotional stress, allowing you to focus on areas with better potential.
Optimizing Well-Performing Assets
As I await the stock market’s recovery, I’m focusing more on real estate, which comprises a significant portion of my net worth due to its stability and income potential. This includes renovating properties to enhance value and income potential, an effective strategy during uncertain times.
Living Well Despite Dead Money
The best response to financial setbacks is to continue living the life you desire. If you can maintain your lifestyle amid financial downturns, you truly win. This mindset helps put financial losses into perspective and underscores the importance of enjoying life’s journey, prioritizing happiness and family over financial gains.
Exploring New Growth Opportunities
Consider investing in private growth companies through funds like the Innovation Fund, which focuses on cutting-edge sectors like AI, fintech, and proptech. Such investments might seem dormant but could generate substantial returns as these technologies become mainstream.
Remember, financial planning isn’t just about managing money; it’s about ensuring that money enables a fulfilling and joyful life. Adjust your strategy according to market conditions, but never lose sight of what makes life worth living.
