Dear Stock Market (Goodbye?)

By Brad Thomason, CPA


(From the Mail Bag:  A distraught buy-and-hold investor writes…)

Dear Stock Market,

They say that everything changes and nothing stays the same.  I’ve been doing some thinking along those lines, and I hate to have to tell you this, but I’m just not sure our relationship is working out all that well anymore.  In fact, I’m beginning to wonder if it ever did.

I remember when I was in college.  So young.  They told me about you.  Said that the US stock market returned 12% on average, year in and year out.  They showed me charts and graphs.  Look here, kid: it’s all in the numbers.  I thought that was pretty cool.

Several years later when I was working at that broker/dealer and the old insurance guys were trying to figure out how to sell variable life policies, they told us we couldn’t use more than 12% as the assumed rate of growth in the projection software.  Didn’t want to overstate the possibilities, and besides even if 12% wasn’t great, it was still pretty good.

But here’s the thing.  You aren’t giving me 12% a year anymore.  And it’s been so long now that to get back on track you’d have to like double in value or something.  Not really sure how I see that happening with a slowing economy and an aging population, at least not anytime soon.

You probably know this, but you’re worth the same thing today that you were worth back in December of 1998.  Thirteen years, and no net movement.  Now don’t get me wrong, it’s been an exciting ride in the meantime.  After all, you’ve had some pretty mighty runs.  Then again, the ones that lasted were recoveries of previous losses, for the most part.  Losses.  Wow, I guess you realize this, but you’ve lost more than 40% of your value, not once but twice, in the past dozen years.

But you know, back in the day, I sort of knew what I was getting into.  Really I probably didn’t, but I’m trying to give you the benefit of the doubt here.  What I mean is that I knew there would be fluctuations, but in light of the fact that my money was going to grow at a faster rate than I could get elsewhere, I figured in some sort of cosmic way it would all end up being worth the risk.  Just toss in my money, and hang on for the ride.  I’m not so sure about that now, and I think I know why.

It all comes back to that 12%.  See, it never showed up.  That changes the amount of risk I’m willing to endure.  I’m sorry, but it just does.  It’s getting harder and harder for me to figure out what I’m getting in return for all of this fluctuation, and the stomach acid I get to metabolize as a result of it.

It’s called risk and reward.  So one question: where’s the reward, Dude?  I mean, I’m trying not to get too stressed here, but you do understand that if I had just put my money in the bank 10 years ago I’d have more today than what I currently have in my brokerage account, right?  A freakin’ bank!  Do you know how low CD rates have been?  And the bank still beats your performance.

OK, look.  Maybe I need to calm down a bit.  I’m not saying that I think you’re evil or anything like that.  It’s just that things don’t seem to work like they used to.  I know the economy has slowed and you can only do so much.  Then there’s the traders.  They’ve always been around, but the technology makes it easier, and there are a lot more of them out there now.  Changes the game.  I get it.

But at the end of the day, I gotta start looking out a little better for myself.  My financial plan isn’t really predicated on you being up more than last year or even that some guy at some fund performed better than an index (you know… you.).  My plan is based on me getting a steady x% return each year.  And the only thing steady I’m getting from you is a goose egg.  So I’m going to have to look at some alternatives.  They are admittedly sort of scarce, but they’re out there if you know where to look.  So I gotta look.

Not saying I’m going to abandon you altogether.  But ultimately our relationship is about a means to an end.  I hate to state it in those terms, because I don’t want to cheapen the whole thing.  We’ve known each other a long time, been through a lot together.  No one would be happier than me (or is it I?) if things went back to the way they were.  Man, if you were still crankin’ out 12% every year…  Oh well, maybe someday.  But until that happens, I gotta look at some changes.  I wish I could say it isn’t you; but it kinda is.  Anyway, hope you understand.

All I know is that we’re here at the end of another year.  And even if you put on a big rally, how do I know it’s not going to just turn around and fade away in a few weeks?  I’m not getting any younger, and every year that passes has me wondering how many more I can just sit around and wait for you to get your act together.  It’s an introspective time of the year, I guess.  But I’m not sure that changes the facts.  I’m not getting what I need out of this relationship.  That’s the bottom line.  I just can’t count on you anymore.

So, just wanted to give you a head’s up that I might be making some changes.  Hope that doesn’t ruin the holidays for you, but you know, it is what it is.  We can talk sometime if you want, though I’m really not sure there’s a whole lot you can say.  Anyway, whatever.  Later…

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