Taking the Stock Market Punches

By Gary Silverman, CFP®

This is the fourth installment of my three-part series on why you should include stocks in your retirement savings. Fourth part of three? Don’t worry; I am actually good with numbers. The last three columns discussed why buying stocks makes sense when preparing for and living through retirement. This fourth article is different. Instead of writing about why you should include stocks, I’m going to share my experience with why folks can’t seem to hold onto them.

In almost everything we buy low prices seem like a good thing. If a computer I was going to buy for $2,000 was priced at $1,700, I would find it more appealing. Sure, the price may come down some, but I get a heck of a deal if I scoop it up now.

I like cooking fish (the fish, on the other hand, aren’t as thrilled about this). When I was picking up salmon, cod, and halibut the other day, I noticed the salmon was on sale. I put back some of the cod and halibut and picked up more salmon. If it was good the day before at one price, it seemed even better for a dollar off.

When it comes to investments, however, folks don’t like when they are on sale.  Since the stock market has averaged one 30% downturn every five years since World War II, folks see sales quite regularly. That the stock market has grown to well over 50 times its value since then is no consolation when you’re watching your portfolio plummet.

This, I believe, is because of a phenomenon involving investments. If fish or computer prices are down, we realize they may go lower. But we also know, with a fair amount of certainty, that prices are not going to zero. Not so with stocks. People know there is a chance for a stock to completely lose all of its value.

While that is a valid point if we look at a single stock, it is not valid when we look at the entire stock market. A single stock can go bankrupt. Barring the U.S. government nationalizing all public companies, a successful invasion of a foreign power, or the caldera under Yellowstone erupting and ending all life in the United States, it isn’t likely every company in the S&P 500 or any other stock index are all heading to zero at the same time.

And if any of those events happen, trust me; your retirement portfolio won’t be on the top of your mind.

Knowing this, you may want to start adding or increasing stocks in your investment mix. But please don’t do so if you can’t stand what might happen next. Watching your investments drop in 2022 wasn’t fun, and 2008 wasn’t that long ago. You’ve seen how dire the market can look. You’ve seen fear in many investors—amateurs and professionals alike. The stock market will punch you in the gut now and then. Toughen up, be ready for it, and make sure you have a good defense in place for this inevitability.

That, or stay out of the fight.