Everyone talks about how the market has averaged 8%, 10%, 12%... whatever, some high percentage.
If you’re 20 years out from retirement, or 10, or 5, or worse: in retirement now… those ‘long-term’ historical figures can be incredibly misleading and relying upon them for your financial planning WILL lead to financial devastation for some.
I’ll walk you through all the numbers so that you’re as prepared as possible…
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My Story
When we were younger, my sisters and I received some money from our grandfather. Our plan was simple: we wouldn’t touch it until the time came that we wanted to buy our first house.
That meant that the money would be growing for years in the background (managed by an Edward Jones representative, in fact) while we finished up our schooling.
All three of us were interested in business and financial markets (likely influenced by that same grandfather's entrepreneurial success and legacy). From asking my mother for a Wall Street Journal subscription for my 12th birthday to starting and running my first store-front business at 17, I was obsessed.
My sister closest to my age got married and purchased a house near the tail end of the 2001-2007 stock market bull run.
Buy-and-Hold In Action
I had studied the stock market. I knew the ‘buy and hold’ mantra. I was disciplined.
As the market started to turn over near the end of 2007 and all through 2008, I was like a stone, immovable, without emotion. While the world around me was freaking out, this was my chance to prove my ability to disconnect from the chaos.
I succeeded beyond all expectations.
I proved I had what it takes. I could ‘suck it up’ and ‘stay the course’ with the best of them even in the face of a roughly 50% crash.
The market started its rapid recovery in March 2009. I had remained ‘rational’ the entire time. I had not panicked in the slightest.
Needless to say, in that moment, I was proud. I felt like this was my first real test, and I passed!
In the summer of that same year, I got married to a very special girl. We lived in my tiny, 300-square-foot studio apartment for our first year of marriage, relishing all the money we were saving with our crazy-cheap, $250-per-month rent.
My Time for the Money
In June 2010, it was time to upgrade.
I was starting to make decent money as a financial advisor, so we felt comfortable dipping into that investment account to help with our down payment.
It was then (and after a conversation with that sister) that I realized just how much less I was dealing with than she had.
When she had purchased her home in 2007, her investment account was more than 65% larger than mine was when I needed it in 2010.
I didn’t complain, nor was I at all upset (that’s not the point here). I was (and am to this day) very appreciative for my grandfather’s gift and hard work.
Instead, this was the beginning of my quest to find better ways to invest—to challenge the traditional financial paradigms.
It was the seed of my desire to critically consider any financial advice I heard (even if it was the common practice advised and accepted by academics and ‘experts’ alike).
But, for my case in point here, it was a slap in the face as to how much the timing of WHEN you need your money can impact your bottom line.
Financial Ruin for Tens of Millions
In truth, this reality was not a huge deal for me. It didn’t set me back in any way. This was gifted money, after all—money I wouldn’t have otherwise had. So, in my mind at least, whatever the balance, I was ahead.
For those preparing for retirement after decades of hard work and dedicated savings, however, that difference could be devastating.
Before this personal experience, I never really noticed this happening to others. But after that, for the next several years, I saw it everywhere.
The Baader-Meinhof Phenomenon
It was like the Baader-Meinhof Phenomenon (the so-called “frequency illusion”) where upon discovering some obscure bit of information, you start to see it everywhere.
I had client after client come to me, needing to delay their retirement plans because of the 2008 market decline (some even had to come out of retirement and pick up part-time work as a Walmart greeter).
I’d see similar stories on the news and in the paper—it’s difficult to fathom the tens of millions that were affected in this same way.
The frequency of these occurrences declined over the following years until in 2013 it wasn’t really talked about much at all anymore.