I LOOKED UP OUR investment account balance recently. It’s something I’d avoided doing for months. My wife, the voice of reason, said we might bounce a check if we didn’t know how much was in the money market fund. Confession: I don’t balance our checkbook manually.
I waited to log on until after the Dow Jones Industrial Average shot up 14% in October, its best month since 1976. I don’t know why the bear lost its grip on the Dow last month, but it seemed like an opportune time to see how much damage had been done.
We’d lost nearly as much as we’d paid for our house in 1997, yet our balance was higher than when I retired in July 2020. We’d essentially surrendered the last 18 months of gains—the gains that the market had given us in 2020 and 2021.
One of my jobs as a senior editor at Vanguard Group was to make a down market seem palatable to the firm’s investors. When stocks fell sharply, a senior executive would invariably call me from the back of a taxi to suggest that we do a “market story.”
By this, he didn’t mean we should write a piece that began, “Sell everything while you can still get out alive.” No, we needed a story that would calmly assure investors that we’ve experienced much worse drops before and the market had always recovered and gone on to new all-time highs—eventually.
This has the virtue of being true. But it’s not always easy to be the voice of reason when Mr. Market is having a panic attack. When stocks collapsed in September 2008, I’d written just such a story of reassurance. It was ready to be published on Vanguard’s website. It said Congress had passed a large rescue package to shore up the stock market and the economy—a story I’d written in advance of passage.
Incredibly, the House voted the package down while I was watching it live on C-SPAN. On a second monitor, I watched in shock as the stock market jumped off a cliff in reaction. The Dow plunged 777 points—then the largest points drop in its 112-year history.
At that moment, I left a voice-mail message for a colleague saying something like, “Don’t elevate that story, the House has just done something incredibly stupid, and the market’s falling down an elevator shaft.” She told me later that it sounded like I was going to cry.
I didn’t, but it did feel like an out-of-body experience, like falling off a ladder and thinking, “This can’t really be happening.” Yet the lesson I draw from that whole dismal experience is the market did eventually recover and I made a lot of money.
By spring 2009, I’d decided that stocks were irrationally beaten down, so I shifted my 401(k) balance to 100% stocks. That’s my version of capitulation.
In 1930, at the start of the Great Depression, the great English economist John Maynard Keynes said that the economic dislocations of his age were only temporary. The central message Keynes conveyed was one of optimism.
“This is only a temporary phase of maladjustment,” he wrote in an essay in which he tried to predict what life would be like for his grandchildren. “All this means in the long run that mankind is solving its economic problem. I would predict that the standard of life in progressive countries one hundred years hence will be between four and eight times as high as it is.”
Was he right? Yes. Between 1930 and 2010, per-person income grew 5.6 times higher in the U.S., after adjusting for inflation, according to Nobel-prize-winning economists George Akerlof and Robert Shiller. An exceptionally long-lived stock investor would have done even better. A $100 investment in the U.S. market in 1930 would be worth $29,101 today, even after factoring in inflation.
With each downturn, it becomes easier for me to believe that this too shall pass. Yet it still bothers me to see my account balance lower than it was previously. Intellectually, I know this must happen to me as a retired investor. But psychologically, I feel like I’d rather not see it.
Greg Spears is HumbleDollar’s deputy editor. Earlier in his career, he worked as a reporter for the Knight Ridder Washington Bureau and Kiplinger’s Personal Finance magazine. After leaving journalism, Greg spent 23 years as a senior editor at Vanguard Group on the 401(k) side, where he implored people to save more for retirement. He currently teaches behavioral economics at St. Joseph’s University in Philadelphia as an adjunct professor. The subject helps shed light on why so many Americans save less than they might. Greg is also a Certified Financial Planner certificate holder. Check out his earlier articles.