A Cure for Stock Market Fatigue

FAMILY UPDATE

We have two indoor cats. This breed, called Ragdoll cats, is bred to be completely defenseless. You can pick one up and rub his tummy; they will just lay there. They absolutely cannot be outdoor cats. They would lose in a fight to a squirrel.

Of course, they want to go outside and become expert escape artists. This week it took almost an hour to coral Coconut. We were chasing her with the golf cart, but we finally got smart. We sent our (also harmless) puppy running after her, like a sheepdog. In a matter of minutes, Coconut ran right back in the front door with the dog in hot pursuit.

My latest orchid in full bloom below.

It seems like the stock market has been going down forever. It has been two years since the peak. Since then, everything has been flat or moving down. If you are retiring or retired, what do you do? Even though I tell you to look at your account once a quarter (at most), I know many of you don’t listen. I understand that seeing your account go down is disheartening. You’ve pegged your retirement security on these vehicles. If you are retired, you are probably taking distributions each month. You are taking distributions from an account that is going down. It's not a fun feeling. Not at all. I’ve been in the investing game for twenty-one years. I’ve seen these kinds of scenarios before. Investing was so much fun in the 2010s. You couldn’t go wrong. All your accounts were going up. In fact, you were taking retirement income checks from the investments AND the account was still increasing in value. What a great feeling! Now, in this current environment, is when the rubber meets the road. For investors that stay the course, financial success will come their way. Those who panic and sell are breaking the fundamental rule of investment: Don't buy high and sell low. Financially successful people ignore these bumps and focus on other things in their life, like relationships and health. What have I seen in the past during periods such as this? I’ve seen one phenomenon reveal itself again and again. Whenever the stock market is finished being in the doldrums, it recovers- fast. After the 2008 real estate crisis, the market had a tough year. Unfortunately, many people bailed out of their investments. But what would have happened if you had stuck in there? In 2009 the stock market returned 25.94%. Let me emphasize this fact by saying: Whoa! After the internet bubble in the early 2000s, things turned around in 2003. The return that year? 28.89%. Again, when it turns, it turns quickly with an extremely high return. I’m a history guy. Let’s go back further. During the Great Depression, after four bad years, in 1933, the market returned 49.98% I bet you would have been pretty upset if you threw in the towel too early. World War II is another good example. 1940 and 1941 saw negative returns, only to see it pop by 19.17%, 25.06%, 19.03%, and 35.82% over the next four years. Believe it or not, there weren’t any strings of bad years all the way up to the 1970s, where, you guessed it, after a two-year downturn, the markets increased by 37% and 23.83% the next two years. Every time in the past that markets experienced a prolonged downturn, the year it recovers has banner returns. Moral of the story. Hang in there. I know it feels like it will take years for your account to recover. When the markets start upward again, it will probably happen quickly. We can’t time the market on this one. If we wait until the markets "look better," you’ve probably already lost at least half of the return. Here is your homework for this week: Delete the stock tracking app on your phone. When you see the stock market results on TV say to yourself, "who cares? In a year anything that happens now will be a blip on the radar." If you know of a friend suffering from stock market fatigue, send them this email.

Be Blessed,

Dave

I am doing Social Security Strategy webinars each Saturday at 10:00 AM. To sign up go to www.SocialSecurityRSVP.com. I guarantee this one-hour class will help you get the most from the system.

 

Investment Bank Failure

FAMILY UPDATE

Have you noticed that new gas stations have many more food options inside? I had my son (student driver) drive us to a new station nearby. It had a full kitchen and a full menu. How exciting! It was almost like we had a new restaurant by our house.
We ordered several items from the menu, and after having tasted it all, we came to the conclusion that no matter how fancy they made it seem, it still tasted like gas station food.
My son commented, "We should have gone to Publix."
Below is Jesse holding his best friend's hand (leg).

It was early Thursday morning when Mike and Connie King watched a documentary on Bernie Madoff, the notorious criminal who stole billions of dollars from investors. He was the king of the Ponzi scheme. A Ponzi scheme is simple. You invest money with someone. They put the money in their own bank/investment account to spend on themselves. If a client wants a small amount of money he pays it out of his bank account. If too many people want their money back the whole thing falls apart.

They'd been having breakfast in their kitchen with the TV on and discussing plans to play pickleball doubles with friends when the documentary grabbed their attention. Afterward, Connie was worried.

She turned to Martin and said, "We have all our money with a financial advisor too! It all seems so easy. All Bernie Madoff had to do was fake statements. He took all of those people’s money."

"Honey, remember. We talked to our advisor about this exact concern. He explained how we were fine," comforted Martin.

"How do we know he wasn’t lying? Bernie made everything look fine too. He faked statements, Martin, for years," Coretta said.

"Our advisor told us that our money was held at a bank, TD Ameritrade. We get statements from them every month and they have online access. It seems pretty legit to me," responded Martin.

Coretta was not feeling any better. "I saw a TD Ameritrade branch over in Shelbyville. I’m driving over there now."

Martin and Coretta raced over to the bank. As they got up to the teller, Coretta said, "We wanted to check on our account."

"Of course," replied the clerk. She pulled up the account and gave her a statement. It looked exactly like the ones she saw in the mail.

"Have you heard of your financial advisors running away with people’s money?" Corretta asked sheepishly. The teller looked confused. "I’ve never heard of that before."

Martin and Coretta went out to lunch at Chick-fil-A. "Do you feel better?" asked Martin.

"I guess so," answered Coretta. She was now thinking about all the ways she could lose her money.

"I know TD Ameritrade is a big bank and everything, but what if they go out of business?" Coretta exclaimed. "You've read the headlines. A couple of banks went out of business."

So Martin and Coretta went back to the bank again (Martin was getting a little frustrated). Coretta went up to the same teller and asked, "What happens if you guys go out of business? Do I lose all of my money then?"

"No need to worry," said the teller.

"Think about it this way. If you have stock certificates inside a safe deposit box inside a bank, what happens if the bank goes out of business? Do they open all the safe deposit boxes and steal the contents? No. The owner of the safe deposit box goes into the bank and removes the contents. Your stocks are no different. They are held separately from the bank’s assets. It's different than cash in a bank."

She continued, "Back during the Great Depression when many banks were failing, a large number of people lost all of their money. But for the people who had stocks and bonds the bank closures did not affect them. Yes, their portfolio was way down, but they still had the shares. Given time, their stocks would have all come back. The bank customers lost their cash forever."

Coretta breathed a deep sigh of relief. But as they drove home from the bank, Coretta couldn’t get the nervous feeling out of her chest.

"Maybe our investments are safe, but that still doesn’t mean we couldn’t lose our money if the stock market crashes," Coretta said.

Martin, gripping the steering wheel tightly, responded, "Our advisor has been that through, too. Let’s go home and re-read one of his newsletters."

So that is what they did.

Their advisor fancied himself an economic historian and often pointed out long-term historical results that were hard to ignore.

"Coretta," Martin reassured his wife. "We have about half of our money in bonds and half of the money in stocks. Let’s look at his charts again."

Results from
50% Bond Aggregate Index
50% S and P 500 Index

1990 1.5%
1991 24%
1992 9.8%
1993 13.2%
1994 0%
1995 28.58%
1996 13.74%
1997 22.47%
1998 18.15%
1999 10.87%
2000 .15%
2001 2%
2002 -11.8%
2003 20.9%
2004 10.3%
2005 4.88%
2006 11.33%
2007 4.3%
2008 -20.81%
2009 24.64%
2010 11.59%
2011 7.34%
2012 13%
2013 15.55%
2014 11.95%
2015 .34%
2016 11.07%
2017 15.67%
2018 -3.50%
2019 23.28%
2020 12.87%
2021 13.42%
2022 -14.5%

"That doesn’t seem too scary. I know we can’t guarantee the future but even during 2008, we would have only lost 20%. We’ve made a ton of money otherwise. Look at that! It’s only gone down four times in thirty years. We need to hang in there. Our advisor is right. The only way to be financially successful in retirement is to invest in stocks and bonds," said Martin.

"Ok, I feel better, "Coretta said. "Let’s go play pickleball."

Be Blessed,

Dave

I am doing Social Security Strategy webinars each Saturday at 10:00 AM. To sign up go to www.SocialSecurityRSVP.com. I guarantee this one-hour class will help you get the most from the system.

 

Dying with Too Much Money

FAMILY UPDATE

Red tide is no fun at all. My parents are coming down for spring break, and we were planning on staying at the beach. Unfortunately, I think our plans have been ruined.
I still can't believe some of the tourists who come down and swim in the murky water. If I traveled from Minnesota, and this was my one tropical vacation of the year, I suppose I'd also consider swimming in polluted water.
My 15-year-old son, now that he has his driver's permit, has been driving me around. A couple of nights a week, my other two sons and I have Chris drive us to the gas station to get a candy bar.
Orchid picture below. Sorry about all the orchid pictures but this is peak season. I'll soon revert back to pictures of dogs, cats, and kids.

Often times the information I give you, while interesting, is very academic and sterile. Yet, what we discuss each week, is not an academic subject. We are talking about real people living real lives. I often discuss generosity. What I’ve discovered is everyone wants to be generous. Who doesn’t want to be open-handed? Humans have been designed to serve and help their fellow man. So why don’t more retirees show generosity during their retirement years? It’s not because they don’t want to give. It’s because they are worried about running out of money. How can you be a giver when you fear your own survival? Hopefully, by now, you agree with my argument that spending 5% of your retirement savings each year is not too much and not too little. Now if you are retired and living "paycheck to paycheck" on your monthly investment checks, you cannot be overly generous. You need to take care of yourselves first. But let’s look at Linda and Larry, who found a way to live fearlessly and lived a retirement to be proud of. This example is pretty extreme and few of you have the endurance of Linda and Larry, but I’m trying to make a point. In 1990, Larry and Linda both retired at age 65. Together they had about $800,000 in retirement savings. They entered their retirement years with the same core beliefs as me: —They invested in a diversified portfolio of stocks and bonds. For this example, we will suppose they had their money invested in a generic portfolio of 60% stocks and 40% bonds. —They started taking out 5% of the original account value ($33,000/yr). —They did not watch the financial news. They understood that long-term investing had worked time and time again throughout history. —They focused on living their best life possible. Or more specifically: In 1990, with the money, they hired a personal trainer and a nutritionist. It wasn’t cheap, but it got them in the best shape of their lives. In 1991, with the money, they hiked the Appalachian Trail. They pampered themselves by staying at several hotels along the way. In 1992, they paid the down payment for their son’s first home. His wife and their four kids needed a bigger place and were struggling financially. In 1993, with the money, they took up fishing and hired a charter boat (with a captain) each month. In 1994, with the money, they renovated their kitchen. In 1995, with the money, they started education funds for their grandkids. In 1996, with the money, they rented an RV and traveled to every state in the U.S. (except Alaska and Hawaii). In 1997, with the money, they took a month-long luxury Alaskan cruise. In 1998, with the money, they helped out their struggling daughter who lost her job. In 1999, with the money, Linda volunteered for a battered women’s shelter and sponsored over 20 women to get back on their feet. In 2000, with the money, they went to several shows in the theater district and paid for their grown kids to go with them (they needed some culture). They saw shows in a few different cities. In 2001, with the money, they turned their yard into a landscaped tropical paradise. In 2002, with the money, Larry bought a pristine 1972 Volkswagen Super Beetle. In 2003, with the money, they put $6500 into each child’s Roth IRA to jump-start their retirement and teach them the importance of starting early. In 2004, with the money, they took a river cruise through Europe (Budapest was their favorite part). In 2005, with the money, they sent their granddaughter to England to study for a summer in Oxford. In 2006, with the money, they took up photography. Linda became especially skilled and developed an interest in tropical birds. In 2007, with the money, at age 82, they decided to take up tennis in order to stay active. They got a membership at a country club, took lessons every week, and played with their friends on Tuesday and Thursday mornings. In 2008, with the money, they helped their grandson with the down payment on his first house. In 2009, with the money, they hired a concierge doctor. The best medical care money could buy. In 2010, with the money, they organized a huge family reunion, bringing together several generations from all over the country. In 2011, with the money, Larry published his memoirs and Linda published a book about her passion for photographing nature. In 2012, with the money, they supported a local charity that helped feed hungry children in the area. In 2013, with the money, they supported missionaries from their church working in Guatemala. In 2014, with the money, they tipped every waitress with a crisp one-hundred-dollar bill, no matter how much the meal cost. In 2015, they both passed away. So did they run out of money while having all of this fun? No. What was their account balance based on historical index returns at the end of their life? $2,056,427 They started with $800,000, spent $625,000 generously over 25 years, and died three times wealthier (which they used to create a trust to help future generations of the family). While you might not be quite as busy, you need seriously start thinking about what your money is for. Maybe it is time to spend more and worry less! Be Blessed! Dave

I am doing Social Security Strategy webinars each Saturday at 10:00 AM. To sign up go to www.SocialSecurityRSVP.com. I guarantee this one-hour class will help you get the most from the system.

 

Is the World Getting Better?

FAMLY UPDATE

My one and only beloved daughter is looking at colleges. We went to a college fair represented by sixty universities. It was a little overwhelming. We are trying to decide how big the school needs to be. She's very social and likes big schools. University of Florida seemed impressive. But who knows? I'm sure she'll find the right fit.
Hemingway (the cat) has been stalking my wife around the house. As soon as she puts down her glass of water he instantly jumps up and drinks from it. Below you can see him majestically watching over the orchids.

We are living in some interesting times. I figured we all needed some good news to fight the unrelenting negativity of the media.

The following good news contains an important financial lesson. The human capacity to grow, change, and innovate is absolutely incredible. If you’re worried about the stock market stopping its 200-year positive run, try this on for size:

In 1981, 42% of human beings lived in poverty. By 2018, that number had dropped to 8.6%.

Even with the destruction in Turday, the chance of a person dying from a natural catastrophe (earthquake, flood, drought, storm, wildfire, or landslide) has declined 99% since the 1920s and ’30s.

90% of the world’s population was illiterate in 1820. Today the world literacy rate is over 90%.

In 1870, the average time in school globally was six months. That number is now eight and a half years.

The IQ’s of people of the world are growing at an incredible pace. IQ over the past hundred years has increased 30 points. How is that possible? No one knows for sure, but it probably has something to do with better nutrition, mentally challenging media, more schooling, and a reduction in childhood diseases.

Mothers died 1% of the time during childbirth in the 18th century. Now it is 500 times less.

Smallpox, in the 20th century, accounted for between 300 and 500 million deaths. That is almost unimaginable. Prior to 1980, 30% of people who became infected died. Now the disease has been completely eradicated by vaccines.

Since 1990, the number of people dying from cancer has dropped by 17% due to advances in medical treatments.

In the past thirty years, homicide rates have been reduced by 17%.

Military spending is going down. In the past fifty years, 6% of the world’s GDP (gross domestic product) was spent on the military. That number is now 2.2%.

For thousands of years the Earth was inhabited by hunter-gatherer societies. They worked between three and eight hours a day. Once they found their food, they stopped.

Once we became more of an agrarian society, the average person worked between eight and twelve hours a day (depending on the time of year), six days a week.

By 1830, the country was industrialized and the average American urban worker worked ten to twelve hours a day, six days a week.

Today we stand at eight hours a day, five days a week. Even that has been reduced by 20% since 1950.

The number of countries with legalized slavery has dropped from sixty in the year 1800 to zero today.

One hundred years ago almost no land on Earth was deemed as “protected and regulated.” Yosemite Park was one of the few. Today fifteen percent of the Earth is protected under these laws, which is twice the size of the United States.

Since 1910 economists have warned that the Earth is running out of oil. However, the world has pumped nearly one trillion barrels of oil since 1980.

Oil reserves now stand at 1.7 trillion barrels. At the current rate of consumption, oil will run out in fifty years. Alternative energy is predicted to overcome the use of fossil fuels in the next 20 to 30 years. It appears we will be left with a significant surplus of oil before it runs out.

In the past fifty years, the prevalence of malnourishment in the world has dropped from 37% to 10%.

In the past thirty years, world access to electricity rose from 71% to 87%.

In the past thirty years, access to clean water in the world rose from 76% to 91%.

Seventy-three percent of Sub-Saharan Africa owns a smartphone. A Nigerian coal miner can send money to his mother in Lagos. A fisherman in the Congo can warn his friends about bad weather.

In the U.S., emissions of carbon monoxide fell 73% in the past thirty years.

Wow, that was a lot to take in. No matter what doom and gloom the media likes to heap upon you, never forget that we live in the wealthiest and safest world in human history.

Be Blessed,

Dave