30 years ago this week, the US stock market suffered its greatest one day loss in history when it dropped some 22%. This marked the second day of a 27% two day decline and the end of a total fall of more than 40% from a late summer peak. That day, forever known as Black Monday, caused panicked trading that swamped the market’s systems as seemingly everyone rushed to get out of stocks that only months before they had loved at significantly higher prices.
And just like all of the other times in history, all one needed to do to navigate that drop successfully was to remain invested. Indeed, stock prices had already risen that year dramatically, and they recovered the rest of the year. For the whole year of 1987, while it was a wild ride, the market actually ended with a gain.
In less than three years from the bottom of that crazy October day, one could have doubled their money. And now, 30 years later, prices have risen ten fold. Total returns (including reinvested dividends) would be nearly twenty fold.
All one needed to do to receive these returns was to remain invested. As always, this is one of the simplest and yet most difficult things to do. As we like to remind our clients, the comprehensive financial plan we create for them is important. But likely the most important thing we do is act as insurance from making a “big mistake” like panicking out (with all your friends and neighbors) after stock prices have gone on sale. Stock price volatility will give you the chance to panic out about once every 5 years on average. Doing that only once will permanently lower your personal rate of return. Doing it repeatedly will destroy your returns and likely your faith in investing. We are here to ensure that doesn’t happen.
Turn off the permanent negativity on TV and go watch a sunset!