The Greatest Threat to Your Long-Term Goals
Let me first begin this little diatribe by thanking my clients, and expressing my sincerest appreciations of their continued trust and confidence. These times are not easy, and the long-term, goal-focused, planning-driven investor is under immense pressure to succumb to the emotional tidal wave of panic selling. Experts, academics, scientists, and all manners of other so called “arm-chair experts” are pounding the drum of “This Time Is Different” and incessantly engulfing the airwaves telling investors, how bad it’s going to get.
I feel for the investor.
That’s why our firm is so diligent and passionate about educating our clients. An educated investor makes for a better long-term, goal-focused, planning driven investor, whose decisions are made not on fear or emotion, but rather in facts and financial plans.
I’ve written too many commentaries to mention in my 27 years of advising clients, and I’ve never been more convinced that the message in today’s financial media that “This time is different”, is so far off course for investors, that it’s become a narrative that hurts way more than it helps. But then again, the financial media, has the terrible habit of wanting to forget history.
While there is no doubt that the COVID-19 pandemic will appear in future history books as being unique and scary, it’s after effects are likely to be the same as previous other disasters that come to mind.
History tells us of the Global Financial Crisis of 2008-09, where the “Great Recession” hit the American economy hard, and where families struggled to find work and keep their houses. Where the entire world’s financial system, overleveraged and holding trillions upon trillions of dollars of worthless mortgage derivatives – completely melted down. When money was needed to prop up the system, none was available. Credit had essentially dried up to nothing. Where the S&P 500 Index declined some 57%, worst since 1929-1932. The drumbeat of “This time is different” was particularly loud for investors during this time.
The history books will also mention 9/11, where the nation reeled from the effects of a devastating terrorist attack (worst in American history). American’s shuttered at the fear that WWIII has begun in earnest, and lived in fear of the “next” terrorist attack. The stock markets were closed for nearly a week, and the financial media once again pounded the drum of “This time is different”. This is when the term “New Normal” went mainstream.
On a fateful Monday in October of 1987 when the Dow Jones Industrial Average suffered its worst one-day decline in its’ history (22.6%), and investors wondered if this was our generation’s start to a “Great Depression”. That drop, which had NEVER been experienced in investors’ lifetimes had the media scrambling to tell us “This time is different”.
Fast forward to the COVID-19 pandemic of 2020, where the entire world was (and maybe still is) gripped with fear and panic (because the “experts” told us to be), and the world economy came to a screeching halt after a robust start to the year and the S&P 500 Index dropped 34% in 33 days, which it had never fallen that far that fast in its history. Once again the mainstream media recycled the old narrative that “This time is different”.
Yet through each disaster the equity markets continue to do what they’ve always done – march ever higher, onwards and upwards. From the ashes of disaster, the great companies of America persevere and adjust to reach higher with their technology and innovation.
From that disastrous day on October 17th, 1987, when the DJIA closed at 1,738 to yesterday’s (I write this on June 4th) close of 26,206 and that’s not including dividends, that comes out to rate of return just a shade over 1,407%. And yes, I wrote that correctly 1,407%! (that’s percentage with a thousand). Not a bad result for the patient, long-term, goal-focused, planning-driven investor wouldn’t you say?
These disasters so quickly labeled as “This time is different”, historically have been proven to be nothing more than a blip in the historical textbooks. For the patient, long-term investor, whose investment decisions are born in the investment strategies designed and implemented in accordance with a financial plan, these blips have been opportunities to further solidify that plan.
So, the next time you see or hear the phrase “This time is different” rest assured that while the reasons for the panic and fear may indeed be different this time around, this too shall pass, just as it has in every other time preceding it. History has proven to bestow its blessings upon the patient long-term, goal focused, planning-driven investor.
Lon Broske, CFS®, CFP®
314-576-6767 ext 107
Pines Wealth Management