We must prioritize our health and well-being as one of our most important investments, even during difficult economic times.
We are all feeling the pain of the recession. And many people are comparing it with 1929. Even though no serious economist is saying that they ARE comparable, let’s assume that things will get as bad as they were in the Great Depression. What actually happened to investments during that time?
Let’s assume that you were unlucky enough to invest $100,000 in the S&P 500 on Sep. 3, 1929, the height of the market and the worst date to invest. By July 1932, that $100,000 had shrunk to $11,000. By 1950, that $11,000 rebounded to $100,000! By the end of 1959, that $100,000 had increased to $600,000!
Your money went from $11,000 to $600,000 in 27 years. What do we make of that roller coaster ride? The point here is that patience makes you money. Being diversified makes you money, too. Having $11,000 to invest in 1932 was a huge advantage over having nothing. (And those who had invested in one or two stocks may well have had nothing in 1932!)
You’ve already endured the pain of loss. This is the opportunity of a lifetime: invest in a diversified portfolio, like the Rainbow Portfolio™, find excitement in other areas of your life (rock climbing, hang gliding, scary movies, rollerblading), and sit back and watch your money grow over the next 27 (and more) years. And even if you don’t have 27 years of life left, at this point, the probability of a rebound is higher than a protracted decline.
A : Dear H,
Q : Dear Spencer,
I feel like a hamster in a wheel. I am a money saver. I have ever shifting goals (forever higher) for my bank balances. I am constantly plotting how much I will have in the future which takes all the joy out of today. I become anxious if I cannot save the projected amount I had planned. How can I free myself with this saving fixation? It is making me and my family miserable.
Recall a time in childhood when you learned to just save and save. Realize that all your saving habits originate in childhood.
Do the Actual Net Worth statement on my website and in my book.
Read my chapter on Sufficiency. Nobody ever gets to their future savings goal. We all want and more. The solution to the wanting mind is to write down your financial gameplan with the assumption that you have all the money you’ll ever have right now.
Start spending small amounts of money on pleasure items even if it feels uncomfortable.
Look into attending my Esalen or Harbin workshop. A workshop will allow you to go into these issues deeply and will accelerate your progress. See www.currmoneymadness.com/register.
All the best,
In the last few weeks the
pundits are questioning the viability of investing in equities. As a
result of the financial crisis, equities and real estate are down 30-50%, while
US government bonds (Treasuries) have had strong positive returns.
Furthermore, the pundits say that over the last 10 years the performance for
equities is now below that of bonds. (Keep in mind that when they speak about equities,
they are speaking about the S&P 500, which is only one investment category.)
They ask: Why take on the
additional risks of equities when you don’t even get rewarded over a
longer timeframe of, say, 10 years? Why
not buy Treasuries and decrease your
risk, uncertainty, and stress and still make as much money as you would in
Treasuries might appear to be the safe haven, buyer beware!
At this point in time, the
expectation for Treasuries is that they will do much worse than equities in the
coming years. Treasuries are also vulnerable to inflation (which is becoming a
more likely possibility). Therefore, a bond-only portfolio is far riskier
than we might think.
There are two important rules in
1) Buy low, sell high.
(Bonds are at an all-time high, stocks are at an all-time low. Your
choice is simple.)
only people who have lost all their money have been those concentrated in just
one or a few investment categories. Diversified investors have never lost
all their money.)
everything? Yes, it’s happened before. In Germany in the
1920s, because of hyperinflation, bond-holders lost it all.
the many investment categories available in a highly diversified portfolio
(like my Rainbow Portfolio).
one can know the future, this is the most compelling time to choose a highly
diversified strategy. It is not the time to put all your money into
Treasuries, or for that matter, into any one investment category.