In hindsight, I should have sold all my stocks in January to avoid massive losses in my account. I could have traveled the world, bought a vacation home, or retired with the money I’ve lost in the market this year. It seems obvious now that stocks are down because interest rates are rising, inflation is climbing, countries are fighting, and the supply chain is tightening. The writing was on the wall. The S&P 500 Index is down 19% this year, and the trend appears to be lower, so maybe I should sell now and buy US Treasures to avoid further losses – that makes sense.
At the beginning of the year, the 1-Year T-Bill yielded 0.40%; it now yields 4%, an increase of 890%. Last year the S&P 500 Index returned 29%, so why would I want to sell my stocks and buy T-Bills paying 0.40%? I was convinced stocks were going higher. So far, the tables flipped this year as T-Bills earned 4%, and stocks lost 20%. In hindsight, I should have sold everything.
The Federal Reserve raised interest rates 100% from 3% to 6% in 1994, and stocks barely budged, returning a paltry 1.3%. If I sold my stocks while the Fed was tightening, I would have missed a 37.6% return in 1995, a 23% return in 1996, a 33.4% return in 1997, a 28.86% return in 1998, and a 21% return in 1999.
I should have sold my stocks In March 2020 during COVID because the pandemic shut down the world, but had I sold, I would have missed an 18.4% return that year and a 29% return last year.
I should have sold my stocks during the Great Recession, where stocks fell 37% in 2008, but I would have missed a 329% return from 2008 to 2022.
I should have sold my stocks during the Tech Wreck, where stocks fell 43%, but I would have missed a 340% return from 2003 to 2022.
I should have sold my stocks before the Gulf War in 1991, as stocks fell 3% in 1990. If I had sold, I would have missed a 1,007% return from 1991 to 2022.
I should have bought stocks in 1982 when I started working part-time for my grandfather’s company. I did not earn much, but I could have created a monthly dollar cost averaging program to take advantage of buying stocks while they were down. Since 1982, the S&P 500 has averaged 12.3% per year and jumped more than 3,000%! A $100,000 investment is now worth more than $3.1 million!
The US T-Bill is the safest investment in the world and has never lost money over the past 95 years. If you crave safety, look no further. Since 1926, it has averaged 3.3%, and so has inflation, so your net return is near zero. A $1 investment in 1926 is now worth $21.
The S&P 500, on the other hand, is volatile and loses money often, about once every four years, and in some decades, it earns nothing. For example, from 2000 to 2011, it averaged 1.7%. From 1969 to 1975, it returned 1.6%, and during the Great Depression, it took more than fourteen years to breakeven. However, since 1926, the S&P 500 has averaged 10.5% per year, and $1 is now worth $14,076, or more than 67,000% times the T-Bill!
Shoulda, coulda, woulda, is a terrible disease, and it can drive you crazy because no one knows what will happen tomorrow, not even the experts on CNBC. If you need money in one year or less, buy T-Bills; if your time horizon is two to three years or more, buy stocks.
It is challenging to buy and hold stocks, but markets eventually rebound. In the meantime, follow your plan, diversify your assets, think long-term, and good things will happen.
For the record, I still own my stocks, and my asset allocation is 75% stocks and 25% bonds, where it has been for the past thirty years.
I’ve had a lot of worries in my life, most of which never happened. ~ Mark Twain
September 17, 2022
Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management, located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so you can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets. We have waived our financial planning fee for the remainder of the year, so your cost is $0.00.
Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor. I didn’t buy stocks in 1982 because I had no clue what they were.