An Investment Black Hole
The James Webb telescope recently sent stunning pictures of our, or someone's, galaxy. They were the first photos viewable to the public, and according to Al Jazeera, "The dawn of a new era in astronomy." The telescope opens a new vista for professional and amateur astrologists alike. In addition to brilliant stars and stunning nebulas, James Webb could shed new light on black holes.
Investing now probably feels like you're throwing money into a black hole as the Dow Jones and other indices descend into the abyss. If you contribute to a 401(k) plan or invest monthly, you're likely frustrated because you're throwing good money after bad. The year is half over, and you have nothing to show for your efforts to save money.
The Vanguard Balanced Index Fund (VBAIX) is down 16% for the year, so if you're contributing to this fund monthly, you're down too. The fund launched thirty years ago, and if you sold it during the previous down drafts, you missed an 896% return. It generated an average annual return of 8.05%, and a $10,000 investment is now worth $99,630!
Does it make sense to keep investing as stocks plummet? It does. To get the biggest bang for your buck, investing as the market craters will pay huge dividends in the future because you're buying more shares at lower prices, and when the market rebounds, you will prosper. As a comparison, you're purchasing fewer shares at higher prices when stocks rise as they did last year. You should welcome lower prices if your time horizon is three to five years or more.
I've talked to several people lately who said if they had sold their investments in January, they could have bought a car, boat, plane, house, etc. I get it. However, it's not healthy to look in the rearview mirror and say shoulda, coulda, woulda. It doesn't do any good to look over your shoulder and wonder what could have happened if you timed the market perfectly. It might not look, but if you buy stocks when others are selling, you may be able to buy two cars or boats or planes or houses in the future. The volatility in the market is what produces generational wealth.
A friend recently liquidated his holdings inside his 401(k) and moved the assets to cash though he doesn't need the money for several years. As a result, he runs the risk of running out of money in retirement. A safe investment today can cause more trouble tomorrow.
The James Webb telescope is 1 million miles from Earth, orbiting the sun. Scientists risked much to build, launch, and deploy it, and we could not enjoy the breathtaking pictures if they decided to play it safe. It required more than thirty years to build the telescope. I'm not a rocket scientist, but I bet they experienced frustration, delays, setbacks, and red tape over the past three decades, and, thankfully, they did not give up on their dreams.
Venturing into the unknown is frightening, especially if you're experiencing doubt and frustration. A down market is an opportunity for the brave investor to buy quality investments when they are out of favor, and it doesn't take a large telescope for you to see it's better to buy low and sell high.
Onward and upward.
Black holes are where God divided by zero. ~ Albert Einstein
July 12, 2022
Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management, located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so you can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM's custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets. We have waived our financial planning fee for the remainder of the year, so your cost is $0.00.
Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren't suitable for every investor. I mentioned I'm not a rocket scientist, but my uncle is!