Lessons From October 19, 1987

Good Morning Relaxing Retirement Member,

Do you remember where you were 23 years ago on October 19, 1987? I sure do.

Ronald Reagan was still President.

Personal computers were fast becoming the rage, yet in less than one percent of households in America.

The Minnesota Twins won the World Series behind the brilliant pitching of Frank Viola. (Now we’re dating ourselves)

And, last but not least……..the stock market crashed!

Yes, 23 years ago was “Black Monday”. The Dow Jones Industrial Average plunged over 500 points closing under 2,000!

That’s a 24% drop in one day! Wow!

Do you remember how you felt that day?

Okay, why would I bring that awful day up at a time like this?

The reason I’m calling this to your attention is that this marked a day of intense fear, anxiety, and worry among millions of Americans who thought their financial lives were over!

Right after the crash, it was pretty hard to convince anyone that this was not a unique event, and that their long term financial future was not in serious jeopardy.

Fast Forward 23 Years

Well, let’s fast forward 23 years and take a look at what’s happened since then.

We’ve been through wars in Kuwait, Afganistan, and Iraq.

We’ve suffered numerous terrorist attacks, with the greatest one coming on September 11, 2001.

We’ve had 4 more presidents, and a complete turnover in Congress many times over.

We rode the technology bubble until it burst at the seams in the early 2000s.

After years of double digit price increases, the housing market also burst and we’ve been reeling ever since.

And, even after all of that, including countless other significant omissions, where is the stock market today?

The S&P 500 Index is up over 500% since then.

In dollar terms, that means that if you had invested $1 million in the S&P back then, fallen asleep, and awakened today, that $1 million would have grown to over $5 million.

Now stop and think about how incredible that is?

Even with all of those “tragic” events, including the most recent credit crunch global meltdown, 23 years later, your $1 million would have grown to over $5 million.

What You Can Learn From This

So, what can you learn from all of this history?

1. First, recognize that whatever is going on today, while it may feel entirely unique, as it did back on October 19, 1987, isn’t really that unique from an historical perspective. Chances are great that we’ve been through it before, and you’ve survived its impact.

2. The stock market was volatile back in October, 1987. It has always been “volatile” and it will continue to be “volatile”. That may not make you feel much better, but volatility doesn’t seem so bad when it’s expected.

3. Investing takes real discipline. It’s not good “timing” that is the key to investing. It’s the duration of time that you’re in the market that matters. Resiliency is typically rewarded, as it was if you didn’t jump out back in October, 1987.

4. Fourth, and most important, is that you can’t even begin to think about investing in the stock market at this “retirement stage” in your life before taking the time to develop a carefully thought out long term plan based on your own unique set of priorities and resources.

Without it, any significant market movement is likely to throw you into a tailspin and take you off of the disciplined path that is necessary for investment success at this stage in your life.

5. Lastly, remain disciplined in spite of daily market movements. Once you’ve taken the preceding four steps, then your job is to “objectively” monitor your results and rebalance to your prescribed mix on a regular basis without emotion.
Let’s hope we don’t have to live through another day like October 19, 1987. But, if we do, this time around, you’ll be a lot better prepared if you follow these strategies.

Committed To Your Relaxing Retirement,

Jack Phelps
The Retirement Coach

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