The Last 2 Years?
Six Flags over Georgia opened the Great American Scream Machine in 1973. Put your arms up, and on the way down, for a second or 2 you were weightless. Much like a roller coaster stocks over the last 2 years have clanked their way up to the high point and rumbled right back down. Stock market levels are just about where they were 2 years ago. Add to that inflation over that period of about 11% and if you did nothing your investments would be down 11% in real terms because of inflation. Lucky for us it’s not quite so bad because some stocks pay dividends. The average yield of the S&P 500 right now is 1.6%. In round figures over the last 2 years, we got back from dividends enough, so we are around 7% down adjusting for inflation. In fact, since 1957 the S&P 500 with dividends has averaged a 10.26% return. It’s 8.92% without dividends. Warren Buffett did most of his initial investing in banks, insurance companies, and utilities which as a group tend to pay good dividends.
Let us face it we are all human we hate losing. The pain of losing sticks with us twice as much as the euphoria of winning. I try harder in my old age to celebrate things that go my way (winning), we just don’t give winning enough credit.
Long Term means Long Term?
It is extremely difficult to get a younger person to invest for their senior years when they are in their 20’s. All they feel is the pain of putting monthly income away (losing) without any positivity. Unfortunately, the law of mathematics and compounding tells us that is the most efficient time to start an investment. If a 20-year-old invests $10,000 until age 65 and is lucky enough to average 10% in stocks their balance could grow to $730,000 vs if they waited until they were 30 years old to invest their balance at age 65 would be $281,000. Never put money into stocks unless you are in it for the long term. The same can be said for real estate and direct investment in business. Success takes a long time.
Timing?
The when, to invest over the short term is everything. Over the long term, the when, is less important. Many working people over the last 50 years have been able to invest in 401-Ks at work, much of the time putting money in each month. This is a process called dollar cost averaging. Dollar cost averaging takes much of the timing risk out of investing in stocks. I cannot say this enough, I hope someone is listening. Do not try and put money in and take money out of your stock market investments. Timing the market is a guaranteed way to lower your rate of return over time or worse lose money.
If you do not believe me just read this next sentence: Over the last 40 years, there have been over 10,000 days to invest; if you take the best 10 market return days out from that time frame then your return would be 75% less! Yes…75% LESS!!!
All that is well and good until it is time to get money out for retirement income. Things get a lot more complicated just when we want less complication. Unfortunately, with the decline of pension plans it is just the way it is. Good management should help you get through. I am in the business, so I can truthfully say my worst examples of retirement income fiasco’s have all come from overspending. Getting money out of investments needs to make sense based on need, circumstance, age, and yes timing.
Stocks Now?
Hopefully, the economy and corporate profits will rise over the next couple of years. That would go a long way in backstopping and helping stock prices. Profits mean everything, and consumer spending is responsible for 70% or so of profits. I am rooting for you America, keep working and keep spending. It is good for everybody.
Happy New Year !
Thanks, Andy McClung CFP TM
Cnbc.com; Ycharts.com; Investopedia.com
2023 Market Results
S&P 500 +24.4%
NASDAQ Composite +43%
Dow Industrials +14%
Russell 2000 +15.1%
World ACWI N/A
Source Wall Street Journal 12/31/23