I write to you, our blooom client, not as your investment advisor but as someone who cares deeply about you and your investing success.
I care about you because you (and 23,000 other retirement savers) cared enough about your own future to trust this little company called blooom with what very well could be your single most important retirement asset. As one of the company founders, I will never be able to adequately share how much this has meant to us and the sense of pride we feel in being able to help this many people with something Kevin, Randy and I dreamed up back in 2013. I want you to keep this in mind as you read through the rest of this.
For our clients that are under the age of 32, there is a very good chance that this recent drop in the stock market is the worst decline you have ever experienced as an investor. I say this because it has been roughly 10 years since we last saw a drop in the stock market above 20%. Just recently we flirted with a stock market decline of roughly 20% from its all-time high just a few months prior. But a decade ago we saw the stock market decline by OVER 50% from October 2007 through March 2009. So for all of you born after 1987 I want you to cut yourselves some slack – this is likely your first good ol’ fashioned butt whoopin in the stock market and you have every right to feel worried and possibly even scared. BUT…I think this is important to keep in mind… it is totally normal and OK to feel scared, but it is NOT OK to act on that fear and make rash decisions with your money.
For the rest of you, born before 1987 (myself included) we have seen a few more of these market drops in our time as investors. Not only do we painfully recall the Financial Crisis of 2008-2009 but many of you might also recall the dot-com bubble bursting in 2000, followed by terrible years in 2001 and 2002. Going back a bit further, our clients over age 53 might painfully recall “Black Monday” when the stock market dropped 22% in one single day! Even though we have seen a few of these, all of us still to this day get worried and concerned too when the stock market drops like it has the past month.
I say all this in large part just to give a bit of context. I think a big part of being a successful investor is being a good student of history and history has shown us that the stock market has had drops like we just recently experienced about 14 other times (by my count) since the end of WW II. Yes, you heard me right – before this one, 14 other times the stock market has temporarily dropped by at least 20% and 3 of those times the market saw a drop of roughly 50% (half!) from peak to trough.
Moral of the story – market drops are a fact of life. Every time they roll around it can and will be scary. Scary if you are experiencing a significant decline for the first time or scary if you are experiencing it for the 4th or 5th time. I can promise you, each time it feels a bit different and the decline in the market is usually triggered by different sets of circumstances.
Now, having said all of this – here is the key takeaway….100% of the time after those 14 (now 15) significant market declines the stock market not only recovered everything it lost, it went on to make new all-time high levels! I will say it again, after every single past drop in the stock market – 100% of the time the market has recovered. Not 90% of the time, not even 99% of the time….100% of the time the stock market has recovered everything it lost and then some.
Unfortunately, now more than ever we live in a society where the news is in our face 24/7. Social Media, the internet, round-the-clock cable news. All of those media outlets competing for our attention and advertising dollars. Sadly, these sophisticated media outlets know all too well that by sensationalizing stock market drops we will tune in, stop scrolling and their advertisers will pay them more for your attention. You don’t need to stop reading the news but PLEASE, PLEASE know that the media isn’t trying to help you make better decisions with your investments – they are trying to make themselves more money and they make more money if you click on their headline and watch their news. The more they can sensationalize a story – the higher likelihood you will tune in. Think about it this way, if the stock market dropped 1,000 points tomorrow which headline would be more likely to grab your attention and pull you into their site where their advertisers lie in wait:
“Stock Market drops by 1,000 points but nothing to worry about”
or “Stock Market drops by 1,000 points signaling the beginning of what could be another Great Depression”
By now, as a student of stock market history you know that these stock market drops are nothing new and nothing unusual but the media needs your attention. I think you get my drift.
Here are the 2 takeaways I hope you get from this:
- Historically the market has recovered every single time it has dropped. EVERY. SINGLE. TIME.
- Investing in the stock market over a long enough period of time (think decades, not days) has produced higher returns than safe investments like bonds or cash.
Finally, I want to say this. By rough estimates, there are about 100 million people (+/-) in this country that have money invested in the stock market earmarked for retirement. Blooom is fortunate to help about 23,000 of them today, likely many more in the future. I can tell you for certain that a decent percentage of those 100 million people will get it wrong when it comes to their retirement savings. Mainly because they get scared when the market drops and take drastic actions like stopping contributions to their 401ks when the market is declining or, worse, bailing out of their investments all-together. I wish there was a way for blooom to reach more of these people with messages like this but I at least want to speak to OUR clients and try my best to protect each of you from making mistakes like this.
I got into this business in 1995 to help people make better decisions with their money. At that time, I never dreamed I would ever be able to reach 10s of thousands, and potentially 100s of thousands of investors. When my time is up in this career I just want to know that we reached the greatest number of people possible and armed them with this kind of historical perspective to HOPEFULLY protect them from making bad decisions with their money. First and foremost, we want you, our blooom client to be protected from these common investor mistakes.
Co-founder of blooom
Published on January 15, 2019