I just looked back on an email (shown below) I sent to most of my friends on March 7th, 2009. The subject line was "Stick With the Plan if You're Under 45." Obviously I had no way of knowing that the bottom of the stock market route was a mere two days (one business day) later, but the gist of the email was "buy stocks or at least don't panic sell." It's funny about the comment at the very bottom about treasuries. I think I was proven wrong on that, but right on the rest. Anyone who's followed my posts know that I'm pretty bearish now on the US stock market, but hopefully this email from 10 years ago encouraged at least one or two of my friends not to panic-sell at the bottom of the Great Recession.
On Saturday, March 7, 2009 9:35 AM, ******************* <***************@yahoo.com> wrote:
All,
This is the third (and hopefully last) of my don't-lose-your-sh*t-when-the-stock-market-drops emails.
The economic news is absolutely frightening. The stock market is in the toilet. Unemployment rates make us nostalgic for the Carter administration. Good friends of mine...logical, insightful people...are arguing for putting all your (remaining) money into "safe" assets like bonds. I STILL disagree completely and am staying the course. I have not sold a single share of stock, and have continued to purchase with the few pennies I have left. Here's why:
1) Other than the Great Depression, 1973-1974 were about the worst time for stocks most of us know about. But if you had been so unfortunate as to invest all your funds at the top of the market, you still would have been back to even after 2 years. Why? Because as stock prices decline, dividend yields go up. By reinvesting your dividends, you're picking up lots of extra shares at cheap prices. When stock prices do go up, you get a multiplier effect on those extra shares.
2) What if we're not at the bottom yet? Good question. The market is down about 50%. At this point in the Great Depression, there was still MUCH farther left to fall. However, if you would have invested at this point, you'd be back to even in two years and UP 7%/year after inflation for the next five years. When markets hit lows, they typically bounce back up 20-30% VERY quickly. We had a day in October when the market increased 11% in one day. Therefore, trying to time the bottom is a fool's errand.
3) Worst case: What if you invested 100% of your money in the market at Dow 14,000 AND we're headed into the next Great Depression? Judging by the last one, you'd have been back to even in 16 years, not the 25 years you commonly hear about in the press. Why? Again, because of reinvesting dividends while prices were low. Did you actually pile it ALL into the market at Dow 14,000? I didn't think so. Are we headed for another Great Depression? Maybe, but I doubt it based on the crowds I still see at Starbucks and the lack of soup lines in big cities. Therefore, it'll take a while to earn your investments back, but probably not nearly as long as the press would scare you into believing.
Great reference articles:
http://www.marketwatch.com/news/sto...x?guid={08E3BCA1-506B-4A66-839C-C128CFEA6546}
http://www.hoovers.com/global/pfc/index.xhtml?pageid=15307&fileid=20090223VALUE_ADDED.xml
I want to reiterate:
---No one can successfully time the market and the predictions of Dow 5,000 are just as speculative as the predictions of Dow 36,000 were during the 90's bubble. Just turn off CNBC and forget about it guessing the number and remember that retirement money is meant for retirement so it doesn't matter what it looks like today.
---Everyone should have an emergency cash fund in case of, well, an emergency. (Job loss, illness, etc.)
---If your finances are keeping you up at night, maybe you should slowly consider changing your mix. (But avoid treasuries...they're in a bubble.) If you do make changes, write down your reasons and emotions and re-read it in a few years when the market is climbing and you're tempted to jump on the bandwagon.
-J******
On Saturday, March 7, 2009 9:35 AM, ******************* <***************@yahoo.com> wrote:
All,
This is the third (and hopefully last) of my don't-lose-your-sh*t-when-the-stock-market-drops emails.
The economic news is absolutely frightening. The stock market is in the toilet. Unemployment rates make us nostalgic for the Carter administration. Good friends of mine...logical, insightful people...are arguing for putting all your (remaining) money into "safe" assets like bonds. I STILL disagree completely and am staying the course. I have not sold a single share of stock, and have continued to purchase with the few pennies I have left. Here's why:
1) Other than the Great Depression, 1973-1974 were about the worst time for stocks most of us know about. But if you had been so unfortunate as to invest all your funds at the top of the market, you still would have been back to even after 2 years. Why? Because as stock prices decline, dividend yields go up. By reinvesting your dividends, you're picking up lots of extra shares at cheap prices. When stock prices do go up, you get a multiplier effect on those extra shares.
2) What if we're not at the bottom yet? Good question. The market is down about 50%. At this point in the Great Depression, there was still MUCH farther left to fall. However, if you would have invested at this point, you'd be back to even in two years and UP 7%/year after inflation for the next five years. When markets hit lows, they typically bounce back up 20-30% VERY quickly. We had a day in October when the market increased 11% in one day. Therefore, trying to time the bottom is a fool's errand.
3) Worst case: What if you invested 100% of your money in the market at Dow 14,000 AND we're headed into the next Great Depression? Judging by the last one, you'd have been back to even in 16 years, not the 25 years you commonly hear about in the press. Why? Again, because of reinvesting dividends while prices were low. Did you actually pile it ALL into the market at Dow 14,000? I didn't think so. Are we headed for another Great Depression? Maybe, but I doubt it based on the crowds I still see at Starbucks and the lack of soup lines in big cities. Therefore, it'll take a while to earn your investments back, but probably not nearly as long as the press would scare you into believing.
Great reference articles:
http://www.marketwatch.com/news/sto...x?guid={08E3BCA1-506B-4A66-839C-C128CFEA6546}
http://www.hoovers.com/global/pfc/index.xhtml?pageid=15307&fileid=20090223VALUE_ADDED.xml
I want to reiterate:
---No one can successfully time the market and the predictions of Dow 5,000 are just as speculative as the predictions of Dow 36,000 were during the 90's bubble. Just turn off CNBC and forget about it guessing the number and remember that retirement money is meant for retirement so it doesn't matter what it looks like today.
---Everyone should have an emergency cash fund in case of, well, an emergency. (Job loss, illness, etc.)
---If your finances are keeping you up at night, maybe you should slowly consider changing your mix. (But avoid treasuries...they're in a bubble.) If you do make changes, write down your reasons and emotions and re-read it in a few years when the market is climbing and you're tempted to jump on the bandwagon.
-J******
