Family Update
The house is full again, which is great until you open the refrigerator and watch your money disappear. Two boys on summer break, one more finishing his last final tomorrow, and my daughter is back from school. Full house. I love all of them. I also used to be able to afford steak. Three bites in and I'm already doing the math. Dalanee thinks I'm exaggerating. I'm not.
Stinky, my cat, is the lizard king. No exaggeration, four or five lizards a day are running through our house for their lives with Stinky right behind them. He brings them in from the lanai for sport. We try to save as many as we can. Grab the lizard with a paper towel, run to the front door, and throw the whole thing outside. It works pretty well except for one small detail. When you pull up to our house, there's always like nine or ten pieces of toilet paper scattered across the front porch. That's just how we live now.
People say, "I lost all my money in the stock market in 2008." Or 2001. Or 2022. Or fill in the year.
Really? The market went to zero?
In 2008, the S&P 500 dropped 37%. Terrible. You would have recovered in under four years.
In 2001, it dropped 12%, then another 22% in 2002. Also terrible. Recovery took about four years. Both were once-in-a-generation recessions.
Even in 2022, the markets dropped 20%.
So how exactly did they lose ALL their money?
What they should be saying is one of these:
"I got hot stock tips from my neighbor, started day-trading, thought I was a genius, and then I did something stupid, and my account hit zero."
Or: "I put $100,000 into a company that made state-of-the-art protein shakes, and it crashed."
Or: "I had my entire 401k in company stock, and the company went under."
People with well-diversified, balanced portfolios don't lose all their money. It's not a realistic possibility. So next time your neighbor or Aunt Jenny tells you they lost everything in the market, don't let it get in your head. You're not getting the whole story.
This kind of talk leads people like you to try to be as safe as possible.
In the past week, three different people said almost the exact same thing to me:
"I've kept my money in cash since 2022. I know I'm not going to MAKE any money, but at least I'm not going to LOSE any. I have a CD paying 3.5%."
After the first person, I thought: That's reasonable. They feel safe.
After the second, I thought: Is this actually logical?
After the third, I thought: But you ARE losing money.
Three ways, actually.
You've eliminated market risk, sure. But inflation risk is very real. If inflation raises prices 5% a year and your money earns 3.5%, you're losing 1.5% of purchasing power every single year.
Then there's opportunity risk. If a balanced portfolio returns 10% and you're sitting in cash, you just lost 10%. The fact that there's no red minus sign on your statement doesn't mean you didn't lose money.
Year-to-date, the S&P is up over 10%. If you've been on the sidelines "waiting for things to calm down," you lost 10%. It would take years of bank interest to match what the market returned in six months.
And the biggest risk in retirement isn't market volatility. It's longevity risk, the real possibility that you live much longer than you planned for. Your money has to keep growing. You can't build a retirement on instruments that barely keep pace with a grocery bill.
Here's the gut punch: $100,000 invested in the stock market at the start of 2023, it would be worth $205,000 now. Maybe the money market in your IRA was paying 4% at its peak, but you still missed out on $90,000 in gains. That is a retirement killer.
The great irony: people trying to protect themselves from running out of money might actually run out of money by trying to protect themselves from running out of money. (Yes, that sentence is supposed to sound like that.)
Be Blessed,
Dave