When most people first hear this old adage, they shrug it off.
It seems like something so simple that you shouldn’t have to be told. Most people think, “of course I don’t want to lose my money, that’s contrary to the idea of making money!” But it’s not until you look at the numbers, that you truly understand the profoundness of this statement.
Let’s say the market drops 50%. What percent of return must you have in your portfolio to get back to where you started?
The answer is- 100%.
It’s not fair that, on paper, your account value dropped 50% but it’s even more unfair that you have to earn 100% just to break even!
On October 9, 2007- the DOW Jones hit a peak of $14,164.
It dropped all the way down to $6,507 on March 9, 2009.
It took 15 months from the peak of the market to bottom out, dropping 45.9%.
Then, it took the market until February of 2013 to get back to where it was at the peak in 2007.
While it took the market 15 months to drop, it took it 64 months to get back to where it started.
Here’s where the numbers get interesting.
Starting at the peak of the market of $14,164, if the DOW wouldn’t have dropped and instead returned 6% annually, the value could have been $18,930 by February of 2013.
Instead, at that time, it was just over $14,000.
Here’s where it gets even more interesting.
If the market continued to grow at a conservative 6%, it would have reached $23,898 in February of 2017.
But where was it in February of 2017?
It still had only reached $20,812.
If someone would have taken their earnings off the table at the peak of the market in 2007 and instead invested more conservatively, receiving a 6% return, they would have beat the market over the next 10 years.
This is despite a historic bull run touting a stock market that has more than tripled in value since the bottom in 2009. It is important to understand that the bull market run we’re in right now is unusual. We’re in the second longest Bull Run in the history of the S&P 500. Markets typically cycle every 5 years, yet we’ve been in this bull market for over 8 years. No bull market has ever seen its 10th birthday, will this be the first? No one knows.
Hindsight is 20/20
How would you have liked to take your “winnings off the table” at the peak of the market in 2007 before the recession? Or what about in 1999 before the tech bubble burst?
We speak with many people who were victims of these “corrections” yet where is their money? It’s in the market! Most people don’t want to miss out on these gains!
There are two things that drive the market: fear and greed.
Typically people sell out too early because they’re afraid of losing even more and people buy in, or stay in the market because they’re afraid of not gaining even more.
The majority of our clients are close to, or already in retirement. The name of the game in retirement is income, not growth an accumulation.