Bootstrap Capital LLC
  • Home
  • About
  • Your Advisor
  • What We Do
  • Blog
  • Contact Us
  • Home
  • About
  • Your Advisor
  • What We Do
  • Blog
  • Contact Us

Don't Fear the Bear

10/3/2014

 
Many investors quiver with fear over a bear market. This is like being afraid of high tide at the beach. Like high tide, bear markets are a natural part of the investing rhythm, so you should get used to them.
At my previous job, I had an acquaintance, and we would talk stocks and investing fairly regularly (our co-workers tended to avoid us during these conversations). At the Christmas party in 2008, I asked her what she was doing with her investments.

“That’s it, I’m out,” she said. “This is going to be like the depression. It will be 10 years before we recover.” I’m not sure what happened to her; we lost touch shortly after.  I hope she decided to get back in at the right time.

Now this may sound like heresy, but if you are a young investor, you should hope for a bear market. This may sound counter-intuitive, so let’s walk through a thought experiment.  Suppose a 30-year-old investor is looking to forward to a 30-year contribution phase to her retirement accounts. If she contributes $10,000 a year into her portfolio, which of the two return profiles would be better?

1)   30 years with an annual return of 10%
2)   10 years with an annual return of 4%, followed by 20 years with an annual return of 12.8%

Both profiles have an average 10% annual return over the full 30-year period. 

Go ahead, do the math. I’ll wait.

Profile 2 would be better, right? She ends up with a cool $2.4 million. Profile 1 only nets her $1.8 million.

The stock market is one of the few places where people are dreadfully scared to buy things on sale.  But if you have a long investment horizon, buying during a bear market can turbocharge your returns.

No one likes a bear market. It doesn’t really matter how much math I show you — living through 10 years of low market returns is not going to be comfortable. However, if you keep this example in mind, it may help you to hold firm to your investment strategy rather than getting scared out of the market at the worst possible time.



Comments are closed.

    Disclaimer

    Note: The contents of this site are general in nature and not intended as specific investment advice. All investments are subject to risk; including loss of investment value. If you have any question regarding investments or concepts in these pages, please consult with an investment professional.

    Archives

    June 2020
    February 2020
    October 2019
    June 2019
    February 2019
    January 2019
    October 2018
    September 2018
    April 2018
    December 2017
    October 2017
    August 2017
    June 2017
    April 2017
    December 2016
    November 2016
    October 2016
    September 2016
    May 2016
    April 2016
    February 2016
    December 2015
    October 2015
    September 2015
    August 2015
    July 2015
    June 2015
    May 2015
    April 2015
    March 2015
    February 2015
    January 2015
    December 2014
    November 2014
    October 2014
    July 2014
    April 2014
    January 2014
    October 2013
    July 2013
    April 2013
    January 2013
    October 2012
    July 2012
    April 2012
    January 2012
    October 2011
    August 2011
    July 2011
    April 2011
    December 2010
    October 2010
    July 2010
    April 2010
    January 2010

    Categories

    All
    401k
    529 Plan
    Asset Allocation
    Behavioral Finance
    Bitcoin
    Bonds
    Financial Advisor
    In The News
    Investing
    Mortgage
    Personal Finance
    Re Balancing
    Re-balancing
    Re-balancing
    Taxes

    RSS Feed

(415) 758-2668
Brian@bootstrapcapital.net                                                                                                                                               
Subscribe
Picture
Copyright © 2020 Bootstrap Capital LLC