I have been here before. The year was 1974 and I was new to the financial services industry carrying a rate manual for Massachusetts Mutual Life Insurance Company. U.S. interest rates were 12% and T-bills were yielding 11.5%, not 0.25%. There was as much political drama in Washington as we have now. The Nixon administration was more preoccupied with Watergate and the impeachment hearings than the economy. Once Nixon left office, we thought the stock market would recover but instead it sank 28% in less than 2 months.
Global confidence in stocks was non-existent. The dollar was scorned. Gold had doubled in price (sound familiar). An oil embargo doubled the price of gas overnight, and I waited in long lines at the gas station to fill up my tank to get to my next insurance appointment.
The headlines proclaimed "The Death of Equities" and "World Stock Markets Headed to Hell." It was a great time to be selling life insurance guarantees because if things didn't get better people could shoot themselves as soon as the suicide provision in their policy expired and the family could collect a big death benefit (just kidding). We were selling 3% insurance guarantees and people were buying. I was "rookie of the year" at the local Denver agency. People were panicked and scared. They were willing to accept a 3% guarantee and a death benefit in a cash value life insurance policy over the risk associated with investing
And people were saying, "None of us have lived through this before."
In the third quarter of 1974 as the noise was the loudest, the S&P 500 launched the beginning of a rally that ten years later produced a total return of 325%. For over thirty years, I have watched people's emotions override the common sense of a well-designed investment plan for the sake of "it IS different this time".
I do not want to trivialize the current unique circumstances, and I do not want to forecast the future of the financial markets. Human nature's response to this economic fear and stress is absolutely predictable. If you do not plan on spending the money you have in the stock market for another 5-10 years, do not sell into this weakness. Do not try to speculate on this debacle's stock winners or losers.
Do continue to contribute to your 401K. Do review how your stock market money is invested. Do rebalance your accounts to restore your percentage allocation to stocks. Do make sure that your stock market exposure is not limited to the U.S. only. Do keep your investment costs as low as reasonably possible and still get good advice. Do ask for help from an advisor if you are frightened about your future.
With age comes wisdom? You be the judge. Rob
If you're thinking, "None of us have lived through this before" or "this time it IS different!", then you may appreciate this commentary. If you think we are living in investment never-never land where tried & true investment rules no longer apply and past experience is no guide, then my age and experience may offer some perspective.
On the afternoon of February 8th, Aaron and Brooke welcomed Campbell Faith Grey into the world. Mother and daughter are both doing great.
