I’ve been doing this—writing about the stock market and investments—for a quarter of a century. It’s been a heckuva turbulent ride, including Russian defaults, emerging market crises, dot-com disasters, terrorist atrocities, global financial meltdowns, a U.S. housing collapse that rivaled the Great Depression, inflation panics, deflation panics, energy crises, sovereign debt crises, and a global pandemic.
Through all that time I have been reassured, time and again by some Very Wise People, that the world was coming to an end.
And after all of that, here’s what the whole, long saga has taught me—often the hard way—about turmoil like this.
The people who panic and sell the stocks in their retirement portfolios right here will end up kicking themselves. Maybe not this week, this month, or this year. Maybe not even for a couple of years. But eventually, and big-time.
The people who take advantage of this crash by investing more long-term money will end up patting themselves on the back. They might feel like chumps at first, for weeks, months or even years. But eventually they will be thankful. (And they will forget, by the way, that they ever felt like chumps.)
The people who try to be really clever about it will end up doing worse than the people who keep it simple and don’t overthink it. The further you are from Wall Street, the better you’ll do. The “dumb” money—or, more accurately, the simple money—will beat the “smart” money.
Take these observations or leave them, as you wish.
This relates only to money you don’t need for five years or more: Retirement funds, college funds and so on.
We have had more financial chaos during my quarter-century in this business than at any time in recorded history. Sure, the 1929-32 Wall Street Crash was deeper, but we’ve had the bear market of 2000-3, when stocks effectively halved, the global financial crisis of 2008, ditto, the Covid crash of 2020, when markets cratered in a few weeks, and many more besides. When I began my career, a giant hedge fund had just imploded, sending global markets into a tailspin. The hedge fund, Long-Term Capital Management, was run by Wall Street people so allegedly brilliant that some of them had Nobel Prizes (albeit only in economics, which hardly counts).
The cause of the crisis? Oh, Russia. Turns out it was an unstable country with an unstable president. Who knew?
I remember the first dot-com crash, and tech was supposedly finished for a generation. Then there was 9/11, and we were going to be haunted by perpetual terrorist attacks. No one was going to live in New York any more, no one was going to build another skyscraper, no one was ever going to get on an airplane.
The 2007-9 financial crisis was the worst since the 1930s.
In 2009 Dubai had to be bailed out by one of its neighbors.
In 2011 America’s national debts were so high, and our political system so dysfunctional, that Treasury bonds were downgraded by the ratings firms for the first time ever.
From 2011 through about 2014 the continent of Europe was racked by a debt crisis so bad that it was absolutely, positively, 100% guaranteed to break up the entire European Union and destroy the euro.
In 2016 a country actually did leave the European Union — Great Britain, which had not been part of the debt crisis and didn’t even have the euro. Brexit, too, was guaranteed to destroy the European Union.
A few months later the United States elected a bankrupt casino operator to the presidency, and the country was allegedly doomed.
Two years ago we had a global pandemic compared by some to the Spanish flu.
During all that time? Global stocks overall, as measured by the MSCI World Index, are up 470%. The S&P 500
is up 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 aggressively myself, I would now be writing this from my yacht.
Still tempted to panic?
Since the 1920s, stocks have been overwhelmingly the best investment for long-term saving. The average gain over five years has been 50% on top of inflation. The average gain over 10 years: 120%. And over 20 years, 360%.
Only one time out of four has the market actually failed to keep up with inflation over five years, and only one time in eight has it failed to keep up over 10. Not once has it failed over 20.
This is why the world’s richest people nearly all made their money in stocks and nearly all keep it there. Warren Buffett has 99% of his personal wealth in stocks.
So do the world’s top 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 U.S. private college keeps its endowment 75% invested in stocks. (The richest Ivy League colleges typically take on arguably even more risk by plunging into private equity: Privately-owned stocks that can’t even be sold in the market easily.) Even the most cautious pension funds are typically more than 50% invested in stocks.
The math, and history, are pretty clear. Anyone looking out more than five years, and especially more than 10, should ignore the panic and be in stocks.