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What Cleaning An Attic Can Tell You About Stock Prices Thumbnail

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®

David is the Co-Founder and Chief Investment Officer of Rappaport Reiches Capital Management.  He acts as personal CFO to entrepreneurs and corporate executives, providing organization and clarity in their finances.  Please connect with David below.  He loves to talk about investing, financial planning, and Aspiritech, a non-profit hiring individuals on the autism spectrum.

Source: Dimensional Fund Advisors. Annualized compound returns are computed for the relevant time periods subsequent to new market highs and averaged across all new market highs observations. There were 1,139 observation months in the sample.
1. "Investing in stock market" and all performance statistics refer to: January 1990–Present: S&P 500 Total Return Index, S&P data © 2021 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. January 1926–December 1989: S&P 500 Total Return Index, Stocks, Bonds, Bills and Inflation Yearbook™, Ibbotson Associates, Chicago.
For illustrative purposes only. Index is not available for direct investment; therefore, its performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is no guarantee of future results.
RRCM Disclosure:
The author does not intend to provide investment, legal or tax advice as these materials are for general educational purposes only.  Please consult your legal, tax or investment professional for advice on your particular situation. This material is derived from sources believed to be reliable, but its accuracy and the opinions based thereon are not guaranteed. It is not intended to be a solicitation, offer or recommendation to acquire or dispose of any investment or to engage in any other transaction. Investing involves risk including the possible loss of principal. Past performance does not guarantee future results. Please refer to RRCM’s Form ADV Part 2 for additional disclosures regarding RRCM and its practices.