The Price Of Admission

When investors think about risk, 2008 is usually the first thing that comes to mind.

And for good reason. It was the worst year that most investors alive today have ever experienced.

With dividends included, the S&P 500 lost 37% in 2008, its largest decline since 1931 (during the Great Depression).

Since the end of 2008, the S&P 500 has gained 449% with only one down year, a small loss of 4.4% in 2018. That’s a gain of 15% per year, compounded over 12 years.

This is what a chart of that growth looks like over time…

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Seems like an easy ride, but any investor living through the last 12 years will tell you otherwise.

There were 27 corrections since the March 2009 low of more than 5%. Of these, 10 were larger than 10%, 3 exceeded 20%, and 1 was more than 30%.

Before investing, many will tell you that they can easily stomach a 20-30% decline – they can “tolerate” such a risk.

But when it actually happens, and real dollars are at stake, the true test begins.

This is what a 20% decline looks like in real-time…

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Not pretty. And not easy to sit through while many were prophesizing that the losses would continue.

These were a few of the headlines on the day of the low in 2011…

Notice the fear-inducing language…

“worst quarter since the 2008 financial crisis, and the swoon is hardly over”

“eerily reminiscent of the months leading up to the Lehman Brothers’ bankruptcy in 2008”

If you held your position through 2011, you would be tested again seven years later. In 2018, we saw a similar decline over a shorter period of time.

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Once again, the headlines were not good (“worst week since Great Recession … last time the market fell this much in December was 1931, during the Great Depression”)…

If you held your position through 2018, the biggest test since the financial crisis would come in early 2020.

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