We were told that our mini golden doodle would weigh twenty pounds. He's already thirteen pounds and he's only four months old. How do you get a dog to stop growing? He's the perfect cuddling size right now.
The pets really add so much life and excitement to the house. We have one older cat who is having a terrible time adjusting to the new creatures. All she does is hiss and run away. The new pets are so docile. If anyone knows how to get the old cat to accept her new housemates, let me know.
Desmond delivers the paper to our neighbors each day. What a nice dog.
Louie, peering at his computer screen, let out a big sigh.
“What’s wrong, honey?” His wife, Petunia, asked.
“It seems like every time I look at our investment accounts the values are going down,” he replied. “I was looking online and the S&P 500 (the 500 largest U.S.companies) is down over 12% year to date.”
Petunia was now alarmed. “Louie, we are too old to lose any money. We need this money to live on. Let’s call our financial advisor, Dave.”
When they got Dave on the phone, Louie explained their concern.
“We were just getting worried about the drop in the markets this year,” Louie said. “I figure you are going to say ‘stay the course’, but I’m still scared. My one million dollar account is down $100,000 dollars this year!”
Dave listened patiently, then said, “The markets are a little down so far this year. Let me ask you something. What did the stock market return last year?”
“I can’t remember,” Louie said.
“It was up over 28%,” Dave replied.
“Wow. That much?” Louie said.
“Your account grew from $780,000 to one million,” Dave said. “Do you remember how the stock market did in 2020? It was up 18%. Your account has grown from $600,000 to a million in two years. Now the account is down from one million to $900,000.”
“What’s your point?” Louie inquired.
“Louie, you have only lost a portion of your gains,” Dave replied. “Even with this year’s losses, your account is up to $280,000 over the past two years. I know it is easy to forget what these accounts did. Everyone remembers when the market goes down, and only a few people remember when it went up.”
Here’s an example to illustrate Dave's point.
Let’s say you retired in 1995 with $100,000. In 2000, 2001, and 2002 the markets went down a total of 40%. This was due to the dot.com bubble. Let’s look at what happened.
In 1995 your portfolio would have grown by +37.2%
So what am I getting at? That $100,000 you invested in 1995 would have grown to $210,800 by the end of 2002. That was in the depths of the market correction. Do clients of mine say, “We doubled our money in ten years? That’s great!”
No, none of them do.
They only remember when their account was at its peak, and then every loss from that high point is painful. All they were doing was giving back some of the gains. Certainly not all of them.
After Dave shared this example, Louie said, “I never thought about it that way. I think you’ve made us feel better. I guess we are just temporarily giving back some of the gains. It’s still no fun.”
“I know. It’s not, but the portfolio we are utilizing is designed specifically for times like these.”
Petunia piped up. “Dave, what about all the craziness in the world right now? The markets have to keep going down, right?”
“I have no idea. The market is completely illogical. I know it is frustrating, but stock market returns have very little to do with what is happening in the world.
For example, when Covid first hit in the spring of 2020, the markets dropped around 20%. That makes perfect sense, right? The whole world was shut down and millions of people were expected to die.
But after the 20% drop, the markets began to climb and climb and climb. They grew to all-time highs. Completely illogical. If you try to time the market using logic you are going to fail every time.”
“I guess I knew you were going to say all this,” Louie said sheepishly.
“Don’t worry. It’s my job to keep you on track. I am more than happy to help,” Dave replied.
Louie and Petunia got off the phone, relieved.
In his office, Dave pulled up his news feed. On the front page of CNN’s website was an article entitled, “A major recession is coming, Deutsche Bank warns.”
Dave banged his head on his desk a few times. The phone rang and Dave answered, ready to remind another client they were on the right track.