April 2021 Market update

With the weather warming up a bit, we hope the stock market will stay hot for a while

In March, the Dow and the S&P 500 jumped significantly (6.63% and 4.25% respectively), the NASDAQ and small company Russell 2000, while still up for the month, didn’t fare quite as well as the big stock indexes did (0.42% and 0.91%).

When I began my career in 1984, the Dow Jones Industrial Average had just crossed the 1200 mark for the first time. It finished March at almost 33,000. On Saturdays and Sundays you can tune in any number of financial themed radio shows, including mine, which, by the way, is on 94.5 FM, The Answer, each Sunday at 8:00 AM and 4:00 PM. Some of them provide very good information that can be very helpful in your own financial and retirement planning. But most of them are just hour-long infomercials for the financial products, mostly annuities of some sort, that they want to sell you. They peddle what I call “Fear Porn” to try to get you to be afraid, yes, very afraid of the stock market. Each week they’ll tell you that none of their clients lost money in the 2008 stock market meltdown. They were their clients’ hero during that terrible time. They try to get you to concentrate on that very short time of 2008, and they do not bother to tell you what has happened since that time. Just a few days ago one of those guys said, “oh, we don’t mind people having SOME money in the stock market. But never invest any more than you can afford to lose.” Afford to lose? Who wants to lose any money at all! Let’s examine that statement for a bit. “Don’t invest any more money in the stock market than what you can afford to lose.” What is this guy actually saying in a very subtle way? That’s right. He’s telling you that you better not invest in the stock market because you will lose it ALL! How misleading is that statement? How so profoundly stupid it is! It’s statements like that that was the reason I started my radio program three years ago. I knew somebody needed to be on the radio to combat such dishonesty. Somebody needed to be an arbiter of accurate information, not misinformation.

So, let’s talk about 2008 for a minute. Let’s say your million-dollar IRA was invested in an S&P 500 index fund on January 1st, 2008. That was right at the start of what would become the big crash, the crash that those other radio guy use to peddle all that Fear Porn they use to sell you those high-commission financial products. But on that January 1st, 2008, you had this crystal ball that told you the market was about to go into a tailspin that would be the biggest one since the Great Depression. And there was this friend of yours that sold these guaranteed financial products, so you asked him about them. He told you he had one that would give you “stock market returns,” up to a certain point. But if the stock market crashed, like your crystal ball was telling you it would do, you would lose nary a dime. So, you moved your IRA from that S&P 500 index fund and bought his “guaranteed not to lose” annuity with a great big commission. And to sweeten the pot, his company added double digits, okay, 10%, to your account. You must realize, though, if you wanted to get your money back after a year, or two, or three, that company would immediately yank that 10% bonus they gave you, back away from you, then further charge you a great big surrender charge on top of that. But we won’t talk about that right now.

I want to concentrate on what they say about the stock market and do a real comparison with the product they love to scare you in to. So, in your opinion, and the opinion of your friend, you were smart. You took your million-dollar IRA from the S&P 500 index fund, for which you were paying a one percent annual fee to invest it, and rolled it over to this interest-bearing financial product that would give you “stock market-like returns without any risk.” In fact, this product would credit whatever the stock market made, up to 6% a year, minus dividends, of course. Then the financial crisis of 2008 hit. Your money was safe from the ravages of that meltdown in the stock market and you felt great. Your salesman was your hero because you didn’t lose a penny when the crash occurred.

You had another friend at work you introduced to your salesman friend who was invested in that same index fund you had just left, but he decided to stick with it instead of changing his strategy to what you did. But you two decided to compare your results with each other at the end of every year. At the end of 2008, your account hadn’t made anything, but the insurance company was true to their word and you had not lost. But your account still showed you had that 10% bonus your salesman friend had promised. Your account was worth $1,100,000. Your friend, well, he had taken a beating and his account was down to $620,000. You stuck your chest out because after only one year your account was worth $480,000 more than his. You were up almost a half million dollars over your friend, and you felt like a genius.

But then he started catching up. That first year, he had spotted you $100,000 and then he had endured the crash of 2008. The next year your account was up the maximum 6% the insurance company would give you, but the S&P 500 was up over 26% and he made 25 of it. So your lead shrank from $480,000 to just $388,000. He kept catching up to you year by year until, in year seven, in 2014, he had moved ahead of you by over $50,000. You didn’t feel quite as smart as you’d felt at the end of 2008. Then fast-forward to the end of last year, the year of the COVID pandemic. When you got together on January first of 2021… well you didn’t really get together, you did a ZOOM call with each other, you each held up your statements to each other. His account was worth over $1,100,000 MORE than your account. Your heart shrank and you decided that, while you liked your friend, you’d never compare his IRA to yours again.

Why did his IRA do so much better than yours? One word. Time. You went for what was happening right now, while your friend saw the big picture. He knew that the American free enterprise system would work in his favor, while you’d have to be content with what someone else was willing to pay you to use your money for their benefit. Why do you think these big companies have offices in buildings made out of marble and steel and brass and glass, while your house and my house are made out of sticks and stones? Those large companies have mastered the art of using OPM to get rich. OPM, that’s other people’s money. But if you invest, you become an owner, not a loaner. You can actually own great American companies like Apple, and Microsoft, and Merck. You can be rewarded for their hard work because of your ownership in those companies. Folks, I get a little fired up when I hear others talking about losing all your money in the stock market, because, to me, that is SO dishonest. While I think every honest investment has its place in our world of finance, there is no investment that is right for every investor in every circumstance. And to borrow a phrase from Forrest Gump, “That’s all I have to say about that!”