I’ve been doing this—writing about the stock market and investments—for a quarter of a century. It’s been a heckuva tumultuous ride, including Russian defaults, emerging market crises, dot-com disasters, terrorist crises, global financial crises, Great Depression-era US housing collapse, panic inflations, deflationary panics, energy crises, sovereign debt crises, and global pandemics.
During all that time, several Very Wise People reassured me, time and time again, that the world was coming to an end.
Read: What is a bear market? S&P 500 slips more than 20% from peak, confirming end of pandemic bull run
And after all that, here’s what the whole long saga has taught me—often the hard way—about turmoil like this.
The people who panicked and sold the stocks in their retirement portfolios right here will kick themselves up. Maybe not this week, this month, or this year. Maybe not even for a few years. But in the end, and big time.
Those who benefit from this crash by investing more money long-term will be the losers. They may feel like cumhps at first, for weeks, months or even years. But in the end they will be grateful. (And they’ll forget, by the way, that they ever felt like chumps.)
Read: If you are at least 10 years from retirement, consider a portfolio of 100% stocks.
The people who try to be really smart about it will do worse than the people who keep it simple and don’t overthink it. The further you are from Wall Street, the better you will do. The “dumb” money—or, more accurately, the plain money—will beat the “smart” money.
Take these comments or leave them, as you wish.
This only applies to money you won’t need for five years or more: Retirement funds, college funds and so on.
We’ve had more financial chaos during my quarter century in this business than at any time in recorded history. Sure, the Wall Street Crash of 1929-32 was deeper, but we had the 2000-3 bear market, when stocks effectively halved, the 2008 global financial crisis, as was the 2020 Covid crash, when the boom on the markets in another. a few weeks, and many more besides. When I started my career, a huge hedge fund had just come in, sending global markets into turmoil. The hedge fund, Long-Term Capital Management, was run by Wall Streeters who were allegedly so brilliant that some of them had Nobel Prizes (though only in economics, which hardly counts).
The reason for the crisis? Oh, Russia. It turned out to be an unstable country with an unstable president. Who knows?
I remember the first dot-com crash, and it was thought that technology was finished for a generation. Then there was 9/11, and we had constant terrorist attacks. Nobody was going to live in New York anymore, nobody was going to build another skyscraper, nobody was ever going to get on a plane.
The financial crisis of 2007-9 was the worst since the 1930s.
In 2009 Dubai had to be bailed out by one of its neighbours.
In 2011 America’s national debt was so high, and our political system so dysfunctional, that the rating firms downgraded Treasury bonds for the first time ever.
From 2011 to about 2014 there was such a bad debt crisis on the European continent that it was positively, 100% certain that the entire European Union would be broken up and the euro destroyed.
In 2016 a country actually left the European Union — Great Britain, which was not part of the debt crisis and didn’t even have the euro. It was ensured that Brexit would also destroy the European Union.
A few months later the United States elected a bankrupt casino operator to the presidency, and allegedly the country was doomed.
Two years ago we had a global pandemic comparable to the Spanish flu.
During all that time? Overall, global stocks, as measured by the MSCI World Index, are up 470%. The S&P 500 SPX,
There is an increase of 560%. And if you bought during the crises themselves, when prices had already fallen, you did even better.
Here’s a confession, too. If I had listened less to the doom mongers, and just followed this advice more bluntly myself, I would be writing this now from my yacht.
Still tempted to panic?
Since the 1920s, stocks have been the best investment for long-term savings. The average gain over five years was 50% above inflation. The average gain over 10 years: 120%. And more than 20 years, 360%.
The market has managed to keep up with inflation only once in four over five years, and only once in eight has it managed to keep up over 10. It has failed more than once 20 times.
That is why the richest people in the world made almost all their money in stocks and almost everyone keeps it there. Warren Buffett has 99% of his personal wealth in stocks.
So do the world’s best pension funds and sovereign wealth funds. Norway’s giant sovereign wealth fund keeps more than 70% of its money in stocks at all times. The average US private college keeps its endowment 75% invested in stocks. (It could be argued that the wealthiest Ivy League colleges typically take more risk by going into private equity: Privately owned stocks that can’t even be easily sold on the market). stocks.
The math, and history, is pretty clear. Anyone looking out more than five years, and especially more than 10, should ignore the panic and be in stocks.