How My Cousin’s Investments Went to Zero

Aug 16, 2021 David Kennon

I often hear people say to me, “I lost all my money in the stock market in 2008.” Or “I lost all my money in the stock market in 2001.” Really?!  Did the stock market go to ZERO? The facts: In the 2008 recession, the S & P 500 dropped over 37%.  Not quite all the way to zero, but it did drop 37%. But remember, markets temporarily go down and permanently go up. In 2009, the S & P 500 was up 27%.  In 2010 it was up 15%.   You had all your money back in a couple of years. In 2001 the S & P dropped 12%, and went down 22% more in 2002.   It then increased 29% in 2003 and 11% in 2004. It took about 3 years to get all your money back. So, how are these people “losing all their money?” What they really should be saying is: “I got some hot stock tips from my neighbor.  I then went ahead and started day-trading those stocks.  I was really good at it!  Then the stupid economy tanked and my stupid account ended up at zero.” Or they should really be saying: “I invested $100,000 in a hot, 5-star mutual fund that focused on startup tech companies in China.  Then the market crashed and I lost $70,000!  There was NO WAY I was going to lose anymore.  So I pulled all the money out.  I have been getting .001% interest on the money ever since.” That is what actually happens. People that have well-diversified, balanced portfolios are not going to lose all their money. Do we have a skewed view of economic history? Maybe. The fact is:  In the past 20 years we have seen two historically bad stock market “corrections.” From 2000-2001 the S & P 500 was down about 21% and in 2008 the S & P 500 was down 37%. So from 1942-1999 how many years were worse than those two examples above?  During those 57 years stretching from the end of World War II until the end of the century, how many times did the market go down in such a dramatic fashion? Once. But that is impossible! No.  Really. From 1973-1974 the market was down 40%  (by the way, it was up 37% in 1975). That’s it.  That is the only time. I mean, sure, the market was down 10% in 1957 and down 9% in 1962 and down 7% in 1977 and down 5% in 1981. But to have the market go down dramatically TWICE in the span of 8 years is exceedingly historically rare. The concept that the market is constantly “crashing” or saying that a crash is “due,” is really not painting an accurate picture of reality. Yes, two decades were tough in the past 100 years (the 1930’s and the 2000’s).  But the other eight decades basically saw tremendous and consistent growth. And even those two decades were not THAT bad. If you invested $10,000 in the S & P 500 in the year 2000, you would have ended up with $9090 in 2010. If you invested $10,000 in the S & P 500 in 1930, you would have ended up with $9922 in 1940. That doesn’t look like “all of my money” to me. Next time your neighbor or Aunt Jenny tells about how they lost all their money in the stock market, don’t let it infect your own thinking.  You don’t have the whole story.  And not knowing the whole story can be harmful to your financial health!   Be Blessed,   Dave