For the past 10 years, we watched as stocks consistently moved higher.  Much like the go-go 1990’s, 401k accounts got a huge boost from stocks:  the more risk you took, the higher your returns.

Investors were taught that market fluctuations don’t matter:  “buy and hold, invest for the long term”.  Vanguard’s CEO, Tim Buckley issued a video on 3/3/20:

First, we stand by our mantra—“stay the course”

An investment plan established during calmer times should not be abandoned in the midst of a market downturn. Let the benefits of diversification play out.

But what if diversification isn’t enough?  Here’s an example that covers 12 years:

President Nixon was inaugurated in January 1969 and the Dow Jones stood at 923.  When President Reagan was inaugurated, the Dow Jones hit 950.

The Dow Jones gained 0.24%/year, or 3% over 12 years.

If you had reinvested dividends, the Dow Jones gained 5%/year:  a $1.00 investment grew to $1.80.  But ignores the impact of inflation.  Why does inflation matter?  Because $1.00 worth of stuff in 1969 would cost $2.48 to buy in 1981.

An old-fashioned retirement strategy is to “live off the interest” and leave the principal untouched.  That was much easier in an 8% interest rate environment compared to the 1% that U.S. Treasury Bonds are paying now.

Trees, like stocks, don’t grow to the sky.  If a mutual fund “pie chart” is your only financial plan, we can show you another path. 

If you’re interested in learning more about stock market volatility over the last 90 years, here’s a breakdown by President.