This Time is NOT Different
“Fear has a greater grasp on human action than does the impressive weight of historical evidence” - Professor Jeremy Siegel
I was having a solid Thursday morning until this headline caught my attention:
Here is the article.
I’ve hit on this point before that successful investing often comes down to avoiding unforced errors and not making that “big mistake”.
Well I would argue that those 401k participants re-allocating their 401k’s from stocks to bonds/stable value funds right now are making a huge mistake.
Now, hear me out.
I understand we all have different priorities and sometimes we need to make changes to our investments given how our lives unfold.
But for most of us, our retirement accounts have a long-term investment timeline. These are funds that we won’ be touching for 5-, 10-, 20-, even 30-years.
To me, that is one of the best attributes of a 401k. We can’t access these funds until 59 1/2 without paying a penalty and taxes. Yes, I know there are some exceptions but that’s not the point.
The point is, we actually allow that money to go to work and experience the true power of compounding.
If you are someone who wants to take your entire retirement account from stocks and put them into bonds or a stable value fund to feel “safe”, let me present you with some facts:
From 1802 through the first half of 2022, the REAL return for stocks (adjusted for inflation) was 6.7%.1
The real return on short-term government bonds from 1926 - 2021 was 0.4%, barely beating inflation.
The real return for cash from 1926-2020 was 0.48%2.
There has NEVER been a 20-year period, nor a 35-year period, where real stock returns were negative. However, from 1946-1981 the real return on US Treasury bonds were negative.
We hear all the time, “We buy stocks so we can eat well, but we buy bonds so we can sleep well”.
Well who the F*** is sleeping well owning this:
b. Yes that would be a basket of 20+ year US Treasury bonds trading like the tech-heavy Nasdaq…
We’ve heard it before, “Losing money feels twice as bad as making money feels good”.
But the real risk is not that you will lose money, rather you will out live the money you have.
When you don’t have a plan, you are much more reactionary.
Seeing your accounts drop, a rational person might think, “I need to make a change!”
“But Kyle, I’ve lost 20%, we better get out now before I lose even more.”
“Let’s just wait for the storm to blow over, THEN I’ll get back in.”
Again, rational thoughts.
But this is why the average investor underperforms time and time again.
They don’t care that we’ve had wars, recessions, inflation, deficits, defaults, bankruptcies, shitty politicians, and fraud before.
Because of COURSE, this time is different…
They want to stop the temporary declines, and by doing this, they sacrifice the permanent gains.
The best way to accumulate and build wealth is to purchase real assets. By owning companies that increase in value and increase their dividends above and beyond inflation.
As Nick Murray argues, “people overestimate the risk of holding stocks, and underestimate the risk of not holding them.”
Be an owner, not a loaner.
This time is NOT different.
Be in it to win it.
Disclosure: This material is for general information only and is not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.
All indices are unmanaged and may not be invested into directly.
All investing includes risks, including fluctuating prices and loss of principal.
https://knowledge.wharton.upenn.edu/article/jeremy-siegel-why-stocks-are-still-durable-in-the-long-run/#:~:text=The%20long%2Dterm%20real%20return,It's%20remarkably%20durable.
https://investor.vanguard.com/investor-resources-education/how-to-invest/investment-risk