Don’t Borrow Money

Family Update

My mother-in-law needs a little more help with my father-in-law as he gets older, so we started looking on Care.com to find someone who could give her a break here and there. About 30 people applied in the first hour, and as I was going through the names, one name stood out as a bit unusual. I looked it up on Google and discovered it was a Thai name (just like my mother-in-law). I couldn't believe it! We called her right away and interviewed her that same night, and she is as sweet as can be. The two of them just chatted away in Thai, and she was so happy to have someone she could talk to in her own language. It's amazing how things work out sometimes.

On the business side, I've recently spoken with a few clients who sold their homes up north in Cleveland, New York, and Pennsylvania. All three told me their homes sold on the first day, above asking price. What is going on up there? It feels like the hot real estate market we saw here in Florida during COVID has moved north.

And finally, dogs sure do love to sniff on their walks. It drives me crazy, and part of me just wants to keep them moving. But then I figure, if I were a dog, I'd want to stop and sniff too. 

Did you know that most "normal" investors actually lost much less money during market "crashes" than the media reports?

I’ve been doing some historical digging, and I’ve discovered some shocking truths. I hear a lot of horror stories about how much money people have lost ALL of it during past crashes. You never know! You might be next! Get ready to live in a cardboard box!

The markets have had five significant crashes in the past 100 years.

The Great Depression (1929)
World War II (1939)
Oil Embargo/Nixon Resignation (1973)
The Dot Com/Technology Bubble (2000)
The Great Recession/Real Estate Bubble (2008)

It may come as a surprise to many of you that there were decades-long periods without any major ‘’corrections" in the markets. But I want to point out another interesting statistical curiosity.

Crashes typically cause short-term damage.

Let me explain with an analogy. If you invested all your money the day before the markets faltered in 1929, 1940, 1973, 2000, or 2008, you would have had a bad time. But in the real world, you generally don’t suddenly invest all of your money at once. It is a gradual process as you save money and contribute to retirement accounts over many years.

We need to look at the years preceding the crashes to get a true sense of how damaging they were to real people’s financial lives.

1. Let’s start with the years leading up to the Great Depression.

1926: +11.6 percent
1927: +37.5 percent
1928: +43.6 percent

This means that if you had $100,000 invested in 1925, it grew to $220,000 by the time the markets faltered. Over the next four years, your value dropped to $80,000. The markets then skyrocketed upwards again. By the end of 1936, your account was worth $241,000.

This means that over ten years (1925-1935), your investment in the S&P 500 would have increased from $100,000 to $241,000. That’s a 141 percent increase.

This occurred during the worst downturn in stock market history. What many people don't realize is that during the Great Depression, people borrowed tremendous amounts of money to invest. That is a recipe for disaster. Those are the ones that ended up in the food lines.

Ironically, disciplined stock investors who didn't use leverage ended up with more money than people who kept their money safe in the banks. Most of those people lost everything when the banks collapsed.

2. The World War II crash saw a similar phenomenon. From 1935-1945 (with the markets dropping significantly in 1937, 1940, and 1941), your $100,000 investment would have turned into $242,000. How?

1936 had a +34 percent return.
1938: +31 percent
1942: +20 percent
1943: +26 percent
1944: +20 percent
1945: +36 percent

Who cares if you had a few bad years in between?

3. The 1973–1974 Stagflation

The years leading up to and following the severe 1973–1974 bear market featured major growth waves that cushioned the blow:

1970: +3.9%
1971: +14.3%
1972: +19.0%
1975: +37.2%
1976: +23.9%
1979: +18.6%
1980: +32.5%

Despite the brutal back-to-back hits in 1973 and 1974, that single lump sum grew to over $234,000 by the end of the decade.

4. The Dot-Com Bubble (2000)

The 1990s stand out as one of the greatest decades in stock market history, packed with staggering consecutive gains:

1991: +30.5%
1993: +10.1%
1995: +37.6%
1996: +23.0%
1997: +33.4%
1998: +28.6%
1999: +21.0%

A $100,000 investment at the beginning of the decade turned into a whopping $530,000 by 1999. Did the market drop roughly 40% to 50% from 2000 to 2002? Yes. But because investors had banked massive gains throughout the 90s, they remained comfortably ahead.

5. The Great Recession (2008)

The real estate collapse triggered the worst economic crisis since the Great Depression, but it was framed by solid years before and a powerful recovery right after:

2005: +4.9%
2006: +15.8%
2007: +5.5%
2009: +26.5%
2010: +15.1%
2011: +2.1%
2012: +16.0%
2013: +32.4%
2014: +13.7%

While 2008 delivered a heavy 37.0% drop, the strong performance leading up to it and the robust expansion through the early 2010s meant an initial $100,000 lump sum invested in 2005 grew to more than $209,000 by 2014, proving once again that crashes are just a temporary chapter in a much longer success story.

The Takeaway

Stock market crashes do not happen in a vacuum. To understand the true cost of a downturn, you have to look at the full picture of the decades surrounding it.

The prescription for long-term financial health remains simple: Keep calm and carry on.

Be Blessed,


Dave