What Cleaning An Attic Can Tell You About Stock Prices
While cleaning out Grandpa Harry and Grandma Harriet’s attic you come across several dusty boxes. Clearing away the cobwebs, you see that the boxes hold decades of monthly brokerage statements. The earliest one, still in its original envelope, is from January 1926. The most recent statement, with not too much dust on it, is from December 2020.
Your first thought—didn’t they ever throw anything away?
But then you remember their stories … how every month, during good times and bad, they invested in the stock market1.
So you take another look at those boxes. They hold over 90 years of market history! Are there any lessons hidden in them?
I’ll save you the time of opening each envelope and running some numbers. As it turns out, 3 out of 10 of each month-end statements coincided with a stock market high.1
Think about how Harry’s and Harriet’s lives changed over the many decades. How the economy grew, with new industries and technologies developing. Could they have imagined the miraculous advances in medicine, or in communication? Probably not, but you recall that they were always pretty optimistic that the future would be bright.
They also knew that stock prices reflect growth, rising over time. Certainly not every year, but the long-term trend is up. So they kept investing, even during those many months when stocks were at record levels.
What happened when they invested at an all-time high? Most of the time the market went even higher.
One year after each new monthly market high, their average return was 13.9%.
Three years after each new monthly market high, their average return was 10.5%.
Five years after each new monthly market high, their average return was 9.9%.
Not too bad, Harry and Harriet!
Well, it’s time to get back to cleaning that attic. But those boxes, they make you think about the future, and your own investing habits.
Looking at the market today, you see it’s at an all-time high now, just as it has been for about 30% of the months going back to 1926. You also know that stocks offer strong returns over long periods of time. Will you have the discipline and the optimism to keep investing, like Grandpa Harry and Grandma Harriet?
David Rappaport, CFP®