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How Quickly We Forget The Recent Past… Why?

In early 2009, the S&P 500 Index (S&P) bottomed out after the Great Financial Crisis (GFC). As a refresher, the GFC was the period that culminated with the S&P shedding nearly half its value in less than six months! Ouch! Shocking that we are still here to talk about it. Sorry, I get emotional. Back to the topic at hand, or, more specific, my question to you:

If amidst all the carnage and “the world is ending” rhetoric in February 2009, I told you that in 13 years, your money would grow over 350%, BUT, over the next six months, you would have to give back 20%+… would you take it? Unless you need your head examined, the answer is clearly YES. Why are individuals freaking out about the latest correction if this is the case? Do we forget the recent investment successes that quickly!

Let’s examine in more detail what we have just witnessed over the past decade+. Maybe it’ll calm us all… at least for a moment. Over the past 13 years, portfolios have at least doubled for the majority of equity investors who fall into the following camp: 1) Had a starting balance, 2) Contributes to a 401(k), 3) Invests 100% in stocks, and 4) Kept their money invested. A long-term investor with the goal of a dignified retirement!

Let’s put some real dollars into this. The chart below depicts an investor

who had $250k in February 2009. For the next 161 months, this prudent individual puts $1,500 into their retirement account and invests it in an S&P 500 Index fund.

Fast forward to the end of 2021, and this individual has amassed over $2.2m by investing $732.5k ($250k to start and $482.5k via monthly deposits). An unreal historical run for equity investors tripling their investment. Jumping forward six months, this account has shed nearly $500k, leaving this investor just under $1.8m. This amounts to a yearly return of 19%+ since February 2009. This is near twice the historical average annual return of the S&P (going back to 1957)!

Even with the above facts, we still freak out over a correction… why? Hard to believe, but I have a few ideas/theories:

· More Money, More Problems – For many, this 350% rise resulted in a significant increase in wealth. Our example was a $250k portfolio with monthly contributions. Imagine if you had started with a much higher balance in 2009. The point is that a 20%+ decline on a $2.25m portfolio is $450k versus $50k on that $250k starting balance. That’s a $400k difference in “loss.” People take notice.

· There Is A Forest From The Trees – Short-sighted folks are infatuated with their recent “windfall” and can’t be bothered with stock market history. It’s almost as if there has never been a prior correction.

· The Stock Market Is Magical – Many feel the stock market is a game of chance, and by not exiting at this recent all-time high, you may have missed your opportunity as who knows when/if it will ever eclipse this high.

These theories all share one human characteristic we must remove to have any investment success… Emotions! Yes, it’s hard to deny the emotional rush felt with an increase in wealth. We get that. But, it is important to remember we’re able to capitalize on the recent market rise because you adhered to sound investment principles in the time before the run-up.

As a reminder, we invest in stocks for a reason, we stay invested for the long-term, and we continue to support our investments with contributions. These ideals form the pillars of investing. The recent market highs and subsequent corrections are a subplot in this long-running epic movie—a moment in time.

Knowing what will happen in the short run is anyone’s guess, but we all have a good idea of what the long run holds for those of us who do not forget.

Note: Nothing contained herein in this letter should be considered investment advice, research, or an invitation to buy or sell any securities.


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