The longer an investor’s portfolio is beneath an all-time high, the more doubts start to creep into their mind. The common words of wisdom begin to grow old such as “stay the course”, “buy low”, or “it always recovers”. Patience is tested. One may begin to wonder if things will ever recover, or if they will live long enough to see the recovery.
They may even go down the dangerous thought process of believing “this time it’s different”. Every market downturn is indeed different. Things will continue to happen that have never happened before, but will it be different from the aspect of the recovery? I highly doubt it.
There is no greater place to look for optimism than the incredible resiliency markets have shown throughout history. Let me share a story with you in that regard.
The Dow Jones Index closed 1932 at 60, yes that is six-zero, not a typo. At the end of the century in 1999 it closed at 11,497. While it is hard to fathom, a market participant who earned the market returns would have earned a 191 fold return on their money (or 8.16% annualized). Every dollar invested in 1933 would be worth $191 in 1999. As shocking as that might appear, it is significantly understating the returns since dividends are not included.
While it is hard to get the exact data on the dividends for the Dow Jones Index, I was able to find data in the DFA Returns program on the US Stock Market (as measured by the CRSP 1 – 10 index). Reinvesting dividends along the way brings the total return from 8.16% up to 12.96% annualized. $1 invested at the start of 1933 morphs into $3,507 at the end of 1999.
What happened during the 67 year period from 1933 – 1999? Was it all rainbows and lollipops? Hardly. Here are some of the key moments from that time period that the market persisted through:
Despite all of those scary things…
*Source DFA Returns Web (CRSP 1 – 10 Index).
Sure maybe I am cherry picking a bit, by using the market low at the start of 1933 or by ending at the peak of a bubble in 1999. I’ll go back and use the market peak at the end of 1928…
While the ending dollar value is much different, the overall return is still eye popping. Scary times are to be expected. A calm sea never made a skilled sailor.
Disclosure: This article is for informational purposes only and should not be considered a recommendation. Information contained in this article is obtained from third party resources that Meredith Wealth Planning deems to be reliable. Past performance does not guarantee future results. An investor cannot invest directly into an index. The CRSP 1-10 index and Dow Jones Industrial Average are unmanaged indexes that do not account for trading costs and expenses.
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