Forget owning physical gold and silver. Forget land, where you can grow food, hunt and dig a well for water. Don’t worry about keeping cash on hand and stashed somewhere close.
Forget that stuff. If you really want some financial peace of mind and long-term security, you should put all of your eggs in a Wall Street basket, according to Jeff Reeves, editor of InvestorPlace.com, in a recent piece at MarketWatch.com.
In other words, you should place all of your faith – and the fate of your future – in the stock market.
Reeves begins his “advice” column thusly:
“I recently wrote an article for USA Today about asset allocation strategies and the rather antiquated notion of a 60% stocks/40% bonds portfolio. For it, I interviewed several financial experts who advocated a heavy allocation in stocks — including as much as 100% of your portfolio — even if you’re in your 40s.
“Unsurprisingly, I heard from many readers who considered that advice irresponsible. Their logic is simple: If you’re 100% in stocks, it’s nice while the market goes up, but your savings will be cut in half or worse when the market inevitably crashes.”
Reeves then patronizes, saying that may sound “logical” but only “on the surface.” Anyone with a “deeper understanding” of markets and stocks and such has to “realize” that a 100 percent stock portfolio “is not a strategy designed for a market with no risks,” but rather one that is “designed specifically with many risks in mind.”
About that market ‘correction’
If you’re confused at this point, you’re not alone. But Reeves attempted to explain why his logic isn’t flawed and why yours is – if you don’t trust him on this (and you shouldn’t).
Reeves does point out one obvious fact – that if you buy high and sell low, then yes, you’re going to lose a lot of money and likely be forced to greet people coming into your local Walmart store in order to eke out a meager living in your sunset years. So don’t do that, he advises.
He then goes on to essentially offer the same, tired and ultimately dangerous advice (if all of your future is based on riding the stock market), of making sure that you invest for the long run.
Stocks go up and, well, stocks go down, you see, but over time and on average, most stocks tend to rise. But boy, when the “adjustments” come – think the Great Recession of 2007-08 – they come big-time and can leave you broker than a sailor after a week of shore leave.
‘Just be patient’ is a familiar refrain
“If you look at total returns for the S&P 500 … across the past 70 holding periods of 20 years, starting with 1926-45 and ending with 1993-2014, not a single 20-year period has posted a loss,” Reeves wrote. “Furthermore, a mere eight of those periods posted annual average returns of less than 2% across those years, while 18 posted annual gains of 10% or more. The worst 20-year stretch in modern market history was 1962-81, with just shy of 11% in total returns, while the best run was more than 1,200% from 1980-99.”
Okay, but there was that year – 1929 – and several years afterward when Americans lost a ton of money because the stock market crashed. And while overall the 20-year period might have been so-so, those few years were mighty painful for millions of people, many of whom probably never fully recovered.
The same is true of the last big “correction” due to the housing industry collapse; while the 20-year period might have been positive overall, the Washington Post reported that between 2007 and 2010, Americans lost nearly 40 percent of their wealth, according to Federal Reserve figures. That stings, to say the least – and again, many people have yet to fully recover.
“So, before you pooh-pooh a 100% allocation in stocks as irresponsible, it’s worth acknowledging the reality of long-term returns for patient investors and the rather burdensome price tag of the typical retirement,” writes Reeves.
Patient, indeed. Over the course of a lifetime there is no telling how many times 100-percent stock market investors will be forced to start over.