Zoom Out or Freak Out
Have you heard!?!? Everything is falling apart!!! The stock market is collapsing!!!! It's the end of the world!!!! Right on cue, countless people are gripped with fear over how bad the stock market is doing. Everyone's posting about it on social media, and I've received no less than 15 questions about it just this week.
After all, the stock market is down 4.6% in just the last 20 days. Considering the stock market is supposed to go up 8-10% per year, losing nearly 5% in a three-week stretch feels like the end of the world.
Things are so bad that the market is down to a level not seen since......well, seven weeks ago.....when it hit yet another all-time 153-year high. And after this white-knuckle three-week stretch and watching our investments get beat to smithereens, the stock market is now up only 21% in the last 12 months. Even worse, it's only up 70% over the last five years! Whatever shall we do!?!?
I hope you picked up the sarcasm, as I was laying it down pretty thick. If we don't have a proper context of what's happening, we can really freak ourselves out. Alternatively, we can simply zoom out. When we do, we see a different picture. Like this chart:
This is what the market looks like over the last five years. That little downward blip on the right-hand side of the image is this scary, nasty, terrifying collapse everyone is on pins and needles about. I'll stress the world "blip." Context matters. Context always matters. And, like with most situations, we need to zoom out to gain a proper context.
I won't claim to know what will happen next. The stock market may hit a new all-time high next week, or it could be on the way to experiencing a 50%+ collapse. Either way, I don't much care. Here's what I do care about, though. I care that history tells us, over a long period of time, the market will provide something in the ballpark of 9% per year. I also care that there has never been a 15-year period in history where the market lost money. Lastly, I care that the worst the stock market has done over a 30-year period of time is end up 4.4x higher than it started.
We can zoom out or freak out. I hope you'll join me on the zoom out side of the line. Life is far more peaceful and meaningful when we do.