If you are thinking of taking your 401 (k) out of the stock market or you are too terrified to invest more, you should meet my friend Betty Badluck.
Poor old Betty has had the worst luck of any stock market investor you’ve ever met. In the last 40 years, it has invested in the stock market only six times. And every time her moment was an absolute disaster.
The first time Betty invested in stocks was in late September 1987. She was kicked out for missing the big boom of the 1980s, and when stock prices began to fall late this summer, she decided that this is a great time to buy a drop. It invests $ 400, which is (adjusted for the consumer price index) exactly $ 1,000 in today’s conditions.
A few weeks later, on Oct. At 19, the stock market staged its biggest one-day crash in history, overshadowing even the worst day of 1929. Betty saw a quarter of her money wiped out in the blink of an eye.
Well, after that experience, she didn’t want to go back to the stock market for years. It wasn’t until 1990, when the market fully recovered, that he gained the nerve to invest more in stocks. On July 31, 1990, she invested another $ 450 in the stock market, which (again) works at $ 1,000 in today’s money.
A few days later, Saddam Hussein invaded Kuwait. Oil went through the roof, the stock market collapsed and the world entered a crisis.
Betty kicked once more when she saw that some of her hard-earned money was disappearing before her eyes.
She thought: deceive me once, be ashamed – twice deceive me, shame me. Thus, after these two catastrophic experiences, she swore allegiance entirely to the stock market. And it was years before she even thought about it. But in the 1990s, she looked like the Dow Jones
he went up, and up, and up, and up. They even ran TV commercials boasting about the rise of the Nasdaq. And in the end, that exhausted Betty. Finally, after years of refusing to toss another nickel into her 401 (k), she surrendered. And on July 31, 1998, she invested another $ 560 (which is $ 1,000 in today’s money).
A few weeks later, Russia failed to pay its debts, sparking a global financial crisis. A giant hedge fund called Long-Term Capital Management has collapsed, even though (Peanut Gallery: “Ha ha ha!”) There were many Nobel Prize winners at its border. Everything collapsed.
You understood the picture. Poor old Betty Badlak. She did not give up. But every time she pulled her nerves to invest in stocks, it turned out to be a horrible, horrible moment. So she bought at the end of March 2000 – which turned out to be the peak of the long bubble and the beginning of the longest bear market since the 70s of last century. She bought again at the end of August 2001, shortly before September 11. And it bought more shares in late August 2008, just before the collapse of Lehman Brothers.
Her time literally couldn’t be worse.
But Betty did two other things.
The first is that she did not try to choose stocks, funds or even markets. It invests in a global stock market portfolio that is consistent with the MSCI World Index, including US and foreign equities.
And after investing her money and watching it sink … she left it there.
What happened to Betty?
Well, that’s how a fairy tale hangs.
She did well.
Although she chose the worst six moments of the 1980s to invest in, she made an average return of 20% over the next five years and an average return of 10% over 10 years. She doubled her money. Despite her disastrous, terrible weather, she was black after five years in four out of six cases and black after 10 years 10 times out of 10.
Today, although her total cash out of those six investments is only $ 3,500, her portfolio is worth $ 17,500. This is more than five times her investment. And that’s even taking into account the losses this year, in which the global stock market – and Betty’s portfolio – fell 22%.
When adjusted for inflation, Betty’s portfolio costs three times more than she invested.
And remember, this is not an average return achieved by an average investor. This is the long-term return gained by the most unhappy investor in modern history. If you’re too scared to invest in stocks right now because you’re afraid – understandably – that the market may continue to fall, ask yourself: Do you think you would be as unhappy as Betty Badluck?
In fact, the global market has already fallen by more than a fifth, so it is impossible to determine the weather as badly as Betty. You can’t buy from above because we are already at a good distance.
I have absolutely no idea about next month, three months or three years. I do not know which markets will do best and worst and with how much and when.
(Nor, by the way, anyone else. If you don’t believe me, come back in a few months or years and let’s review all the forecasts.)
However, I can only recall a few cases in my career when the people of Wall Street panicked as much as they do now: October 2008 and March 2020. Both turned out to be great times to buy.
Most importantly, people who save for retirement don’t want to make money from stocks for the next few weeks or months (which may be great). They are looking to raise money, so that after a few decades, when they get tired of work and want to smash their laptop with a hammer and retire, they can open their 401 (k) statement and see with great pleasure and surprise that have amassed a large fat pile of money.
In this case, they really have no excuse not to buy right now. And if they don’t know, just Vanguard Total World Stock
or a mixture of, say, 40% iShares MSCI USA Equal Weight
and 60% Vanguard FTSE All World former US
it will be better than nothing.
I bet they won’t be as unhappy as Betty Badluck.