25 years ago today was Black Monday. The Dow Jones Industrial Average, in a single day, fell 22%. I bring this up, especially today, because I am seeing a large number of financial pieces out there today and I too wanted to add my two cents. I would love to say that the bulk of pieces I have been reading today are positive, uplifting and reflective of what has actually happened in the market since then, but alas I am left to be the voice of reason. Or, to the financial goobers out there, I’m the crazy guy on the street corner that yells nonsensical and unsophisticated things to anyone who will listen. But you can decide for yourself which side of the fence you think I am on.
In a single day the Dow took a dive. It had closed on October 18th, 1987 at 2,246.74 and on October 19th, 1987 closed at 1,738.74. This fact reflects that none of us can read nor anticipate future events and what specific effects they will have on the stock market. Reflections from that day state that there was blood on the streets. Investors (institutional and individual) shed stocks and ran to “safe havens” such as bonds and even some to cash as the Dow dived on that fateful day, and that is a damn shame.
I advocate consistently investing over a long period of time, regardless of what is happening in the market. I began my life as an investor right before the freefall in 2008. Since then I have consistently and steadily invested through my retirement and taxable brokerage accounts monthly without regard to what is happening in the market. I’ve bought when it’s up, I’ve bought when it’s down and I’ve bought everywhere in between. And to this day I have average annualized returns that are beating taxes and inflation, and I expect them to do so with emphasis for the decades to come.
But back to the subject at hand. On Black Monday the Dow fell 22% and there was blood in the street. Just a little over a year later, on January 31, 1989, the Dow restored itself from Black Monday by closing at 2,342.32. From Black Friday through January 31, 1989 the Dow went on a run fit for a bull, going up 26%. If you had “nerves of steel” and invested $1,000 when everyone was jumping off the roller coaster, by the end of January in 1989 that would have turned into over $1,200.
But I don’t know when the market is going to make big jumps and falls and neither do you. All we know is that over the decades the market has always consistently risen. So my investing strategy is to invest consistently and hold my positions for at least five years. I invest for growth and ride out market cycles through my buy and hold strategy. My investments are spread across four types of mutual funds: Growth, Growth & Income, Aggressive Growth and International. And I only invest in mutual funds that have been around for at least 10 years and have average annualized returns of over 12% since inception. In fact, the first mutual fund I bought, EVER, during the freefall in 2008, has generated a 13.4% average annualized return for me.
So I’ll end by beating on this drum yet again, mainly because it’s my favorite! Only invest in proven and quality investments. If you do this and invest for a time horizon beyond five years, then you will be on the path to financial peace J.