Why you should abandon the stock market!

Okay, I’ll bite, why should you? Fact is you shouldn’t.

I keep reading about individuals in their 40s, 50s, even early sixties who feel their retirement has gone up in smoke because of the stock market gyrations in 2020. Get a grip folks.

A few surveys show people abandoning the stock market or shifting from stocks to bonds.

Yes, some people have faced a financial crisis, lost jobs with debt accumulating, but most will recover although it will take time. But for the bulk of Americans a drop in their retirement savings is not a crisis albeit a scary experience.

Let’s look at investing in the S&P Index over the last one hundred years. Assume in each year you started with $10.00 and invested only $10.00 each month (inflation adjusted). Here is what you would have in 2020 considering dividends and capital gains, inflation and taxes.

  • 1920 $735,238
  • 1930 $384,285
  • 1940 $237,919
  • 1950 $116,302
  • 1960 $65,740
  • 1970 $47,583
  • 1980 $27,814
  • 1990 $11,452
  • 2000 $5,412
  • 2010 $2,701

All for ten dollars a month (adjusted for inflation). These calculations come from the periodic reinvestment calculator.

Looking at a more realistic investing scenario, let’s say you started saving $100 a month (adjusted for inflation) at age 25 in 1955 and retire in 2020. You would have $812,561.

So, is there any time it’s not worth using the stock market. Well, you may say, what if the market tanks just before I want to retire? I’d say,

  1. As you get near retirement you should lower your stock investments by investing in bonds or similar investments to lessen your risk.
  2. You aren’t going to use all your money the year you retire (I hope) so there is still time to recover.
  3. Build an emergency fund so, if necessary, you can limit your retirement account withdrawals for several months.

2 comments

  1. I am a believer in LONG term investing in the stock market. The only time I abandon the stock market was my son’s college fund. My mother died in 1998. I put $10K in a growth stock index fund for his college education target date 2005. The broker understood this and he recommended a fund. Back in those days, investment research involved paper magazines. Several magazines highly rated this fund. First, the dot.com bubble busted followed by 9/11 taking the fund to 50% of what I invested. Finally, in 2003, I sold losing 30%. The reason I sold was I needed a hard number of how much was going to be left for his college. I supposed I could have gotten student loans and paid off the balance when the stock market bounced back, but then there was the banking / housing crisis in 2008 so maybe I did the right thing for that case only. It all worked out in the end with no student debt.

    At the time, I just didn’t have enough money to spread around to fund his college. My retirement investments remained diversified in the stock market and has always recovered and done well. I just didn’t have enough time for his college fund.

    Like

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