Matt Damon, The Martian, and You!
Matt Damon is stranded on Mars in the hit movie The Martian. He must use several tactics to survive and regain contact with his crew back on Earth if he wants to live.
After much thought, you join Mr. Damon on his trip to Mars. For this story, your mission trip left Earth on January 1, 1990. Before leaving, you contact your advisor to give her instructions on investing your life savings and tell her to buy three mutual funds and hold them until you return. The trip should be quick, so you're not worried about losing money. She invested $100,000 in the Vanguard S&P 500 Index Fund, the Vanguard Small-Cap Index Fund, and American Funds EuroPacific Mutual Fund. The portfolio invests in large, small, and international companies. Before leaving, you wrote down the value of the S&P 500 on a 3 x 5 card and put it in your pocket. It was 353.40 on December 31, 1989.
On arrival, you're caught in the violent storm when you realize you'll be on Mars for a long time. You can no longer communicate with your advisor or check your investments.
After 32 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 make you more worried than ever, and you're positive your $300,000 nest egg is lost. You frantically search for your account statements, and surely, your advisor read the same negative headlines and stories and sold your holdings before it was too late.
You remember your 3 x 5 card in your pocket where you wrote down the value of the S&P 500 before leaving. You pull it out to compare it to the current value, and you are shocked! How can the S&P 500 be trading at 4,095? The headlines and experts were so negative, which makes no sense. During your time on Mars, the S&P soared 1,060%. Amazing!
As you rip open your statements to view the account values, you're floored at the results. How can this be? It's not possible! Tears of disbelief flow from your eyes. Your $300,000 investment is now worth more than $5.8 million! Your mutual funds increased over nineteen times in value! During your time on Mars, your investments generated an average annual return of 9.5%.
You also notice your portfolio fell 14% shortly after you left, and from 2000 to 2002, it lost more than 40%. In 2008, it crashed by 52%, followed by 20% corrections in 2011 and 2018. During COVID, it dropped 32%, and this year it's down 16%. Yet, despite all the drops, dips, corrections, and crashes, you're a multi-millionaire.
We are in the middle of a financial storm, and the urge to sell is high. At times like this, it is essential 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 for a few years to enjoy life while letting your investments recover and grow.
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
June 1, 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 our clients 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.
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.