I’d say the foregoing analysis is very relevant indeed. (And I’ll bet your financial advisor would agree with me.) At least historically, the best response a long-term, goal-focused, plan-driven investor can make to crisis is no response at all—or, more accurately, to just tune out the apocalypse du jour and con- tinue acting on your plan. Warren Buffett’s teacher, the immortal Benjamin Graham, expressed this most pointedly: “The best way to measure your investing success is not by whether you’re beating the market but by whether you’ve put in place a financial plan and a behavioral discipline that are likely to get you where you need to go (emphasis added) .” Amen to that.
The S&P 500’s peak in January 1973—just prior to that 48% drop—was 120. The dividend that year was $3.61. As I write, the Index is around 4,400, and the dividend last year was $60. You didn’t ask, but the average annual compound rate of total return of the S&P 500 from January 1973 until last month— after the Index halved three times in the interim —was 10.5%. Which is almost exactly what its long-term (1926–2021) average has been. That’s not some quirky, abstract market statistic; it’s the ultimate testimony to the resilience of the great American companies. Too much ancient history? Again, maybe. But again, if you’re a 50-year old couple, you may have a dozen or more years to work, and upwards of three decades to live in retirement after that. If you have anything close to that kind of investing time horizon,
©May 2022 NickMurray. All rights reserved. Used by permission.
Sources: Three bear markets: Standard & Poor’s, Yardeni Research. Dividends: “S&P 500 earnings history,” NYU Stern School. Compound returns: DQYDJ.com S&P return calculator (underlying data are from the Nobel laureate Dr. Robert Shiller).
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