The Market, As Seen By Rip

The stock market has been on a wild ride of late. With talks of tariffs and interest rate rises and cuts, not to mention a ‘looming recession’ everyone seems to want to predict, the market has shed lots of points only to quietly gather many of them back up. In fact, we’re back to where we were about a year ago. And while the Dow is still far from getting back to its high point, all of this drama made me wonder, “What would Rip Van Winkle think if he’d just woken up?”

You may recall our friend Rip Van Winkle. Washington Irving told Rip’s tale back in 1819. In a nutshell, Rip fell asleep for 20 years and missed the Revolutionary War. So what if Rip had just woken up today after having slumbered for twenty years? What would he think of the current stock market? Maybe in our telling of the story, he slept only ten years or five. How about then? And while you may find this exercise silly, I want to illustrate a point. If we’re really long-term investors, then shouldn’t we do our very best to see the market with a longer-term perspective? If we fell asleep for a time, we may benefit from the perspective.

At the end of Rip’s twenty-year nap, he may be astounded to discover the Dow had risen from approximately 10,700 to its current level of 26,000+. And before we look at other timeframes, can we just stop and consider what that would look like to Rip (if he was in fact interested in the stock market)? He goes to sleep when people are calling the market top during the 1999 dot-com frenzy, suggesting investors run for the hills and make cash their BFF. And when he wakes, the same market is 26,000!

Now, in all fairness, things did get pretty bad a few times in between 1999 and 2019, but that’s the very point. Things are always going to ‘get bad’ for a while, but the trend of the market has to be up, given enough time. Why? If the market doesn’t rise eventually, the entire financial system has collapsed and money has no value anyway. In other words, the deal we all make with one another is that a functioning economy only exists if there’s value in investing and innovating and doing productive work year after year. If those factors are present, then we’ll see growth in our investments…eventually.

If Rip’s nap only lasted for ten years, he would have seen a rise from 9,300 to 26,000+. And if you’re paying close attention, that ten-year starting point is lower than the twenty-year value. Yes, things got bad for a while. What about five years? Rip saw the market grow from 16,500 to 26,000. Wow.

In the end, we need to consider a few things when confronted with this information. First, most of us are not invested completely in stocks. A diversified portfolio is likely to include various types of bonds, perhaps guaranteed annuities, and cash. So while the ‘bad for a while’ periods for stocks can be quite painful if we’re fully awake to see them, these other assets are likely to experience less short-term decline than the stocks and thus smooth out the ride a bit. Also, having a twenty-year outlook sounds great on paper and is somewhat necessary for investing success, but retirees need some money today. After all, bills need to be paid while waiting for market gains to compound. That’s why we might invest in income producing investments like dividend paying stocks and income annuities. In other words, a solid plan requires that we do some, well…planning.

Rip’s drowsy perspective can be helpful in letting us see the trends in investing as they are; rising from left-to-right over the very long-term. The current economic and political volatilities will continue to cause drama and need for continued reflection. For those of us who aren’t sleeping off the next twenty years, it pays to plan for the shorter-term while remembering the long-term. Maybe when we finish building a retirement plan with new retirees, we should send a gift of sleep masks and those really long old-timey sleep hats. I think ol’ Rip would find that comforting. Maybe you would too.

All the best,

Adam Cufr, RICP®