In my last post I suggested that atheism helps people manage money. Knowing how risky investing is, I didn't try to claim that atheism makes investing easy, merely that it fosters realistic, rational, and moderate habits of mind consistent with saving money and avoiding debt, setting modest investment goals and pursuing them sensibly, and resisting financial panics and euphorias. I argued that in many ways atheism is better suited than other worldviews to the hard facts of economic life. In this post, I'd like to explain how this atheistic mindset has helped me not just survive the recent Great Recession but turn it to financial advantage.
Let me start with the worst financial mistake I've made in recent years. Back in the 1970s, before I'd thought my way through to atheism, I felt I could make money easily. One of my ploys was to buy 50 one-ounce American Gold Eagles for about $20,000, or roughly $400 each, at the height of the 1970s gold bubble. Then for the next twenty years, while I was still working, I watched the Eagles tank, kicking myself for having swallowed all the 1970s hype about gold soaring to fabulous heights. Finally, when gold fell to under $200 an ounce, I swore to sell the Eagles as soon as they got anywhere near where I'd bought them and in 2002, seven years after retiring, dumped them for $368 apiece. Today they'd be worth five times that much -- if I still had them.
The cardinal rule I broke when I bought and sold the Eagles was the oldest and best in investing -- buy low, sell high. Pre-atheism, I acknowledged the rule but often ignored it, flitting in and out of stocks, bonds, and REITs like a moth around a light bulb. Post-atheism, I resolved to set my financial house in order. I began by investing only in mutual funds and not in individual stocks or bonds.
This meant switching all my pension, 401k and IRA stock holdings to indexed, broadly-diversified stock mutual funds. It also meant maximizing my annual contributions to these tax-free, deferred-compensation programs. And since I was approaching retirement and lived in Maryland, a high income-tax state with a triple-A bond rating, I started putting the rest of my money in a diversified Maryland municipal bond fund.
When I retired in 1995, I initiated my TIAA-CREF pension not as a defined benefit but as a defined contribution, in which the money I and my employers had contributed to my TIAA-CREF account over the years remained under my and my heirs' control -- except, of course, for the annual minimum distributions required by the IRS.
The tech bubble of 2000, the 9/11/01 attack, and the ensuing market volatility made me aware of a reality that I might well have missed in my pre-atheism days. It was that the stock market doctrine I'd always followed -- buy and hold -- was no longer working. So in 2004 I chose cautious market timing instead. Before, I'd been putting fixed amounts in my TIAA, IRA, and 401k accounts over the years and thus averaging market ups and downs. But since retiring in 1995, I'd only been taking out, not putting in, and I didn't want to expose my nest egg unnecessarily to the volatility of the post-2000 markets.
So I began timing the market in the most risk-averse way I could. In early 2004, having 100% of my deferred-compensation accounts in stock, I got nervous about the equity markets and began shifting my stock funds into money market funds (i.e., cash), which I could do without paying any fees or capital gains tax -- a huge advantage of the deferred-tax system that all investors should try to exploit. By late 2005 I was 100% in cash and, feeling the stock market was stabilizing, once again began moving back into stocks. By late 2006 I was again 100% in stocks, having dragged the transfer process out over months so as to cost-average. Luckily, my stock funds rose some 7% during the next eight months.
Then I really started getting nervous. For years I'd been watching the real estate market with disbelief, as shacky dumps and McMansions soared in price. Investment banks leveraged 30 to 1 were buying and selling the no-money-down mortgages of these shacky dumps and McMansions as exotic financial derivatives that no one seemed to understand. I certainly didn't, and when in early 2007 I started seeing reports that banks didn't even have these derivatives on their balance sheets, I concluded the bubble was ready to burst. So on May 18, 2007, I switched the 100% I had in stock 100% back into cash.
It was the best financial move of my life. Though it involved a lot of my own hard-earned bucks, it struck me then and now as all but risk-free. On one hand, everything pointed to a looming debacle in the housing and stock markets. On the other, my money-market funds were paying 5% interest -- a no-brainer of a choice. Sure enough, by March 2009 the markets had plunged by half, and I'd already begun inching back into stocks, a switch completed in late 2009. For a year, I watched the stock funds rise more than 10%, at which point I reversed again and began switching back into cash. Currently, I'm once more 100% in cash, where I'll stay till the current roller-coaster market settles down, hopefully to where I can again buy low.
In short, this old atheist dog did learn new tricks, not from atheist handbooks on how to invest, which don't exist, but from atheism's realistic, rational, and moderate turn of mind, which does. Behind all my financial moves in recent years has been an atheistic skepticism towards every kind of religious or economic panacea. I pay no more attention to the prophets of a new economic heaven or hell than to the old religious prophets. Above all, atheism's given me a flexible, broad-minded view of macro-economic reality I didn't used to have. Basing financial decisions more on national and international facts than on ups and downs in the markets, I now do my best to anticipate these ups and downs. And I always move slowly to smooth out market fluctuation. Though recently market-timing has worked far better than buy-and-hold, I'm open to changing the strategy at any time. The key, as all atheists know, is first to recognize and then to deal rationally with proveable realities.
Maybe I give atheism too much credit. Maybe sooner or later I'd have changed from buy and hold to market timing anyway. Yet I do feel that atheism's realism, rationality, and moderation helped me here. They made me a more disciplined and cautious investor and sharpened my sense both of the world's overall riskiness and of the vulnerability of my own life savings. They've made me better understand how careless and accident-prone many of my earlier maneuvers were and how careful money-wise I must now be.
In any case, since I began timing the markets in 2004, my deferred-compensation accounts have increased in value by 27%, despite extreme market volatility and the worst economic recession since the 1930s. My Maryland muni fund, which I 've steadily added savings to, has grown by 33%. All the while, I've been siphoning off a comfortable retirement income from both. In other words, I feel I've taken great economic comfort and consolation from atheism in these hard and dangerous times.