January seemed tough. The beginning of the month saw the stock market follow a steady trajectory downward. On a social front, big name stars were dying one after another. Between January 10 and January 18, rock star David Bowie, actor Alan Rickman – most famous as the villain in the movie Die Hard and as Severus Snape in the Harry Potter movie franchise, René Angélil – Celine Dion’s husband and manager and Glenn Frey – founding member of the band, The Eagles, all passed on.
Add onto all of that the cold weather January brings, in addition to the anticlimax that typically comes with the ending of the holiday season, and it seems fairly reasonable that many folks would find themselves feeling a bit down in the dumps.
That being said, perhaps there is a lesson to be learned here.
Let’s review some facts. Yes, the market did go through a decline. And yes, four prominent people died in a short period of time, as well, I am sure, as many not so famous individuals.
When measured over long periods of time, the stock market in the United States, as a collective entity, has tended to go up in value. On January 2, 1900, the DJIA (Dow Jones Industrial Average) was 68.13. Thirty years later, on January 2, 1930, it was 244.20. Go thirty years more and on January 31st, 1959 it stood at 679.36 or about ten times what it was worth 60 years earlier.
We can go thirty years more, again. On January 2, 1990, the DJIA was 2810.15. And as of this writing, February 2, 2016 –26 years and one month later, the Dow closed at 16,153.67. At its current level, the DJIA is worth a bit more than 23 times its value going into 1960. That represents an increase of 2200%. In terms of an annual, compounded return, that is equivalent to slightly over 9% a year.
What does this mean to you?
I think we can draw some conclusions. First, over long periods of time, the stock market (and I am focusing on the stock markets in the U.S. as a collective entity) has had an upward trajectory. Now, past performance is certainly no guarantee of future success. Does history repeat itself? I think it is fair to say that we can find some commonalities, some historically relevant patterns in the way people behave.
However, aberrations do take place. When we look at the stock market over long periods things look pretty nice. Yet, if we take a peek at the ups and downs that it took to get the market to where it is today, it reminds me of something I once read about sausage. Most people like sausage. Very few people would like to see how it is made.
Consider that while the DJIA was 244.20 on January 2, 1930, it was only 41.22 on July 8, 1932, enough to give you severe indigestion. Like sausage, the finished product may be one thing, but watching it being made is not something most people want to experience.
Aberrant periods most certainly take place in the stock market. Things can seem steady for a while and then get real rocky, not unlike having four famous people, who made a significant impact on our culture, pass away in a period of a bit more than a week. I suspect many of us began questioning own mortality when Bowie age 69, Rickman age 69, Angélil age 73 and Frey age 67, died in such a short time span. Those appear to be young ages, by today’s standards and expectations.
Life is not one smooth road. There are potholes and detours along the way. It is up to each one of us to stay on a path to our goals.
How do we do this?
There are no crystal balls. No one can tell with any accuracy what will take place tomorrow. However, we can look at history to come to an understanding of some themes. These themes guarantee us nothing, but they might help guide us.
We can determine who we are, philosophically, as investors.
We can predetermine our risk tolerance, in the short, mid and long term and act accordingly.
We can diversify our holdings among a variety of asset classes.
We can diversify our holdings within asset classes.
We can live good lives, yet be more alert when it comes to our buying habits and work toward becoming thriftier.
If we do all those things, I believe we will be better off than the folks who leave their lives and financial future to chance. And by being diligent we can work toward maintaining and improving our lifestyles for the benefit of our families and ourselves.
Scott McGimpsey September 30th , 2016
This material was prepared by Scott McGimpsey and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources, however, we make no representation as to its completeness or accuracy. Neither Summit Brokerage Services Inc. nor Scott McGimpsey is engaged in rendering legal, accounting, or other professionally services. If such assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any federal, state, or municipal tax penalty. Moreover, a diversified portfolio does not assure a profit or assure protection against loss in a declining market. UNIFIED PLANNING GROUP is an independent firm with securities offered through Summit Brokerage Services Inc., Member FINRA, SIPC