I’m 54 and my retirement accounts have plunged this year. I know the usual advice is to “hang in there” but it’s so hard to watch. Any suggestions to help cope?
We are all in the same boat, sailing on the same stormy sea.
“We’ve lost $60,000 in our various accounts,” explained an agitated friend a few years back. “When I think about how long and hard we worked to get that money, it just makes me crazy. We will never get that money back in our lifetime.”
I listened, and I hope genuine compassion showed on my face. The truth is that 2022 will be recorded as a pretty rotten year in the markets. People everywhere are expressing similar thoughts, and who can blame them?
There has been no place to hide so far in 2022. In the first three quarters of 2022, the stock market (as measured by Morningstar®) was down almost 25 percent. If you had $200,000 in the market, it was down to $150,000 on September 30, 2022. During the same period, your bond portfolio slipped by 14.57 percent. Even inflation protected bonds – seemingly a good fit for 2022 - were down 13.61 percent!
Later, though, a thought occurred that might help my friend sleep better. I wish I had been quick enough to share it at the time, but fast thinking is not always my strength. Often – as in this case – my best thoughts grow from someone else’s seed.
Let us assume that my friend has a few hundred thousand dollars in investments. Add in the equity value of his family home and a couple of nice pensions, and his family net worth is pretty impressive. Enough to put his family on the higher rungs of America’s economic ladder.
And he is right when he notes that they worked long and hard to get up there. Experience suggests that most folks in the top twenty-five percent are there for precisely that reason. Wealth building takes serious education, effort, teamwork, and patience. (Writer Malcolm Gladwell suggested that a bit of luck helps, too, but that is a different subject.)
Here is a surprising insight. It is easier to stay up there than get up there. Especially regarding investments. Truthfully, there is more similarity than difference when it comes to investing. Why? Because we are all in the same boat, sailing on the same stormy sea.
Everyone with a portfolio suffered a similar fate. Slightly more or less depending on your precise mix of assets. The seas were rough, and everyone got tossed around a bit.
Housing prices have been unusual, too. Maybe you paid $200,000 for your home and it is similar to most others in the neighborhood. So, you hear a house down the street recently sold for $300,000. Wow, you are feeling awfully good about that … until you visit some open house on Sunday afternoon.
The same thing happened to every other house. Does it really matter what the price tag says today if all prices reflect the same adjustment? Sure, if you sold that house today, you would get more than you paid. But, since the same thing happened everywhere, you will also pay way more for a different house. Your relative position in the neighborhood or nation has not changed much at all even though the numbers are bigger! With homes or investment portfolios, the same things happen to all.
My friend’s investment portfolio suffered this fate. The value dropped ten (or twenty, or thirty) percent, but so did most others! And, interestingly, at roughly the same time, and for roughly the same reasons. The opposite will happen when the markets move up again later. And, so far, they always have moved up again later.
But my friend’s relative position has not changed much at all. The numbers are different, but that is about the only change today. Later, when economic uncertainly abates and investment prices rise again, his numbers will adjust again, too. Simply, he was near the ladders’ top, he stayed near the ladder’s top, and – when things get better again – he will still be up there.
Honestly, it is easier to stay up there than it was to get up there in the first place. I hope you sleep better, friend.
https://www.morningstar.com/articles/1115886/q3-2022-market-performance-in-charts