2017 just hasn’t gotten any easier, has it? After 10 months of natural disasters, internet hacks, political tumult, and celebrity scandal, I know I’m not the only one looking forward to the start of the holiday season for some much-needed light at the end of the tunnel.
Hard as it’s been sometimes this year, my team at Keen Wealth always keeps its eyes on the big picture when we’re managing our clients’ money. And just last month, many of us in the financial industry were looking back at an infamous anniversary: October 19, 1987, aka “Black Monday” – the biggest one-day percentage drop in the history of the Dow Jones Industrial Average.
Thirty years later, there’s a lot that Black Monday can teach us about market volatility, and long-term retirement planning. So, on today’s show, we open up the listener mailbag and apply the lessons of Black Monday to some important retirement questions.
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Insights from Today’s Podcast on Black Monday and Listener Questions
"I am about five years from retirement, and my projections show that I will be in good shape to retire. With all these negative headlines, it's tempting to just sell all my investments and go to cash. Is this an okay idea?"
“How much money do I need to retire?” is still the number one question we get at Keen Wealth. But with all the ups and downs of the past year, “Event X just happened, should I do Y?” is now a close second.
And while I don’t want to make this podcast sound like it’s a repeat, let’s do what we always try to do for our listeners: cut through the noise, and crunch the numbers.
In a recent study, Morningstar looked at the last twenty years of trading days. Over those 5,218 trading days, the market gained on average, 7.7% per year. An investor who missed out on just the 10 best trading days over that period saw their returns drop to 4.0% on average per year. And if you missed the 20 best trading days, your return dropped to just 1.6% per year. Extrapolate that math further, across the life of your investments … Better yet, don’t. The numbers get really depressing, really quickly.
Take in the big picture thirty years after “Black Monday.”
Big picture market trends since Black Monday are an instructive test case for the Keen Wealth philosophy.
On Black Monday in October 1987, the S&P 500 index was at 224. Last month, thirty years to the day, the S&P 500 was at 2562 (ignoring dividends). That’s a 10X return. Earnings of all companies in the index on Black Monday were at $16.04 per share. 30 years later, even after a disastrous hurricane season in the US, earnings per share were close to $130 – an 8X increase. And dividends were up to $48 per share from $9.17 in 1987, a better-than 5X increase. All these figures dwarf the rate of inflation over that same period.
So the 35-year-old investor who didn’t panic on Black Monday, who stayed the course and trusted that the market would eventually correct, is now a 65-year-old who’s probably getting ready to crack open a retirement nest egg that’s going to take good care of him for the rest of his life. The 65-year-old who DID panic in 1987 and made rash, emotional decisions based on the news of the day, might not be so fortunate.
I’ve said it before and I’ll say it again: trying to time your investments to the whims of market volatility or the craziness of today’s news just doesn’t work. For investors who see volatility as the price we pay for harnessing the market’s potential, the long view may still present an arrow trending upwards.
"How do I know who to trust when it comes to short-term market predictions?”
Have you ever played that game with your kids where one person starts to tell a story, and then the next person adds the next part, and then the next person adds the next part, and so on, until the group has a good laugh at the jumble that comes out in the end?
That’s a lot like flipping through cable news and listening to everyone’s perspective on what the markets are doing in the short-term. The talking heads are louder now than they were on Black Monday, but they still all have their own confirmation biases and political agendas, which makes it nearly impossible to trust any of them for clear-cut financial advice.
One news item that you can put some faith in is corporate earnings, which do have a strong impact the markets. When you read about Amazon’s sky-high stock prices or Apple’s potential to become our first trillion-dollar company, you’re seeing positive trends in innovation, mergers and acquisitions, and consumer spending that continue to bode well for the economy at large.
You can also trust my team of fiduciary advisors at Keen Wealth. By way of our investment philosophies and industry experience, our primary goals include helping our clients invest wisely, stay the course, and land their dream retirement.
Bill Keen on Black Monday ...
“Trying to time your investments to the whims of market volatility or the craziness of today’s news just doesn’t work."
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Bill Keen is a CHARTERED RETIREMENT PLANNING COUNSELOR℠ and independent financial advisor with more than 25 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he specializes in providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
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