Matt Damon, The Martian and You!
The Martian movie starring Matt Damon is about his being stranded on the Red Planet after a violent storm. Matt Damon’s character must use a number of tactics to survive and regain contact with his crew back on Earth.
After much thought you accommodate Mr. Damon to Mars. For the purpose of this story your Mar’s mission trip will leave Earth on January 1, 1990. Before you leave you contact your investment advisor to give him instructions on how to invest your life savings. You tell your advisor to buy three mutual funds and hold them until you return. This trip should be quick so you’re not too worried about investing in these funds. Your advisor will invest $100,000 into each of the following funds on January 1st of 1990: The Vanguard S&P 500 Index Fund, The Vanguard Small Cap Index Fund and the American Funds EuroPacific Mutual Fund. Your $300,000 portfolio will be diversified across large, small and international companies. Before you leave you write down the prices of the S&P 500 and Dow Jones Industrial Average on a 3 x 5 card and put it in your pocket. The indices on December 31, 1989 were 353.40 and 2,753.20 respectively.
Once you arrive on Mars you too are caught in the violent storm when you realize you will be on Mars for a long time. You now have no way to communicate with your advisor and check your investments.
After 26 years on Mars you return to Earth and the first thing you do is read the headlines from the newspapers and realize it has been nothing but doom and gloom. The frightful headlines have you more worried than ever. You are convinced that your $300,000 nest egg has been wiped out. You remember your 3 x 5 card in your pocket where you wrote down the value of the indices before you left so you pull it out to compare it the current value of the markets. You are shocked! How can the S&P 500 be at 1,192.03 and the DJIA at 16,346.45? The headlines and experts were so negative. It does not make any sense. During your time on Mars the S&P went up 443% and the DJIA rose 493%. Amazing.
You now frantically search for your investment account statements. You are hopeful that the investment professionals sold their holdings inside their funds to preserve your assets. Surely, the investment professionals were reading all the negative headlines and stories. As you rip open your statements to view your account values you’re floored at the results. How can this be? This is not possible! Tears of disbelief flow from your eyes. Your $300,000 investment is now worth $3,170,000! Your investments have increased over 10 times! During your 26 years on Mars your investments had an average annual return of 9.49%.
After further review, you notice that five times during this 26 year run your accounts had a one year gain of 30% or more. The best year was in 2003 when your investments rose 35.70%. The worst year occurred in 2008 when your assets fell 37.94%. From 2000 to 2002 your account had 3 consecutive down years. Your account had seven years when it ended with a negative return which means that 73% of the time you made money.
We are now in the middle of a storm and the urge to sell is high. At times like this it is important to stop and take inventory of your holdings. You can’t go to Mars but maybe you can go to some small island in the Caribbean or South Pacific for a few years and let your investments run.
He replied, “You of little faith, why are you so afraid?” Then he got up and rebuked the winds and the waves, and it was completely calm. Matthew 8:26
Bill Parrott is the President and CEO of Parrott Wealth Management, LLC. www.parrottwealth.com
Disclaimer: I have not seen the movie. The data for this blog comes from the Morningstar Hypothetical report from 1/1/1990 to 12/31/15. The funds were not rebalanced and dividends and capital gains were reinvested. The taxes were paid out of pocket.