3/01/2010
Americans have outlived or forgot lessons taught prior to the baby boom explosion. From 1900 to 1945 there were eight recognized stock market crashes. The greatest of which is actually two; 1929 ran from 9/3/29 through 11/13/29 when the DJIA dropped 47.9%, followed 4/17/30 through 7/8/32 with DJIA dropping another 41.22%. Actually the greatest single crash was 1937-1938 followed by 1906-1907. However, the crash of 1929 plus 1930-1932 combined with total loss of confidence world wide gave us the Great Depression.
Today as in this by gone era, we have placed our faith, hope, trust and dreams of winning this great lottery. When unprotected from loss, significant or otherwise, investing in stocks or mutual funds is no different than investing $10,000 to play in the World Porker Tour, it is gambling.
Some gamblers do win as do some investors in the market and some of these keep on winning either by skill or luck. These successful individual become known as professionals who then become teachers or establish facilities to help other individuals play the game. The point, has anyone successfully picked winning stocks without suffering significant loss at some point? As I have written in the past; theoretically, over time the market has returned close to 9.5% from 1900 through 2009 and over the last 20 years it has returned 9.4%. But again, based on who you read the individuals average rate of return has been less than 2% before tax.
Given this history, should we refrain from Equity Investments? I think not; regardless of risk, equity investments still have ability to provide superior returns relative to other investment options. The key is, are you gambling or investing for the long term. If gambling is investing or playing with assets unprotected from loss, can you invest with assets protected? The answer to this is yes, if you take greed and/or excitement of chance out of investing.
Consider, which is better over a 7 year period (period between crash of 2000-2002 and 2009); $100,000 at 10% and the crash of 09 or $100,000 at 3% compounded but protected or 8% compounded but protected? At 10% you would have ended in 09 with $74,576 remaining, at 3% you would have had $120,626 and at 8% $159,000. And yes, a protected 8% was available for your retiree investment.
If you remain holding you investments without change and you had the right investments you might have rode with the DJIA back to the 10,000 level, but in 2002 DJIA was 14,164. Recovery from the crash of 30-32 took 22 years. Even if you have 20% growth it will still take almost 5 years to recover back to where you were. To be continued….
Hubert W. McMinn Jr.
Hubert McMinn is a retirement planning specialist working within Texas, USA and located in the Houston area. To better understand your need for Long Term Care as well as structuring it to best meet your needs contact Hubert McMinn by email at hmcminn@plannedassets.com. Web site at: www.plannedassets.com.