A nine day losing streak in the stock market was turned around when Trump was elected president.
“It’s happening! Let the good times roll!!!!” you can hear being celebrated.
But before you crack open your favorite beverage and plan how to spend all your winnings… let’s have a reality check.
Perhaps you already know that your future is going to last more than nine days, so a few days of losing or winning—heck, even a few MONTHS of stocks losing or winning—isn’t going to make a lick of difference to your retirement or how much freedom you enjoy.
Let’s be honest… even several YEARS of stocks going up doesn’t help you if it’s all lost before you get it into your hot little hands to actually use it.
You just need to know the right thing to do for your future… and your present sanity.
90% of investors I talk to are desperately pining for PEACE OF MIND more than anything else.
As it turns out, smart people don’t want a bunch of “Ferrari’s in the yard” as one of my clients put it. We want to simply be able to STOP the worry and anxiety that has become a backdrop for our lives for far too long.
The worry that the other boot is about to drop. A 2008 part 2 or worse.
Millions of Americans who elected Trump are also worried about a financial crisis brewing
Is the threat of financial crisis gone because of Trump?
Let’s take a REAL look. Now, as the guy who loves real, tangible assets over the gambling of the Wall Street casino, I first need to admit something shocking…
If there were good reason to expect long-term growth in the stock market right now, I’d be IN
If I could get—in my actual brokerage account—the 9% long term returns I’ve always heard about, I would invest heavily in the stock market.
And by stock market I mean the whole basket of Wall Street’s wares: stocks, bonds, mutual funds, index funds, ETFs, etc.
The embarrassing reality of America’s last major industry
Years of searching, thousands of investor contacts later… I still haven’t met a single living human who has received a long term 9% ROI from the stock market, passively.
So what kind of performance are normal investors really getting?
Less than 0%.
My research is pretty controversial because it basically suggests that America’s last big industry is not what you think it is.
Let’s take a look at the real numbers…
First off, I like to use this handy “reality check” provided at MoneyChimp.
Let’s walk through how to use it to uncover the reality behind the stock market myths.
As we explore actual stock market performance, the best investing path will become clear to you.
First, let’s examine the maximum range: The year 1871 through 2015:
Annualized return = 9.05%
…There it is, the source of the myth. But in case you hadn’t noticed, we’re moving FORWARD in time.
So, unless you understand the TRENDS and CHANGES, it’s meaningless at best (and devastatingly misleading at worst) to draw any conclusions from this one figure.
Let’s identify those changes and trends…
The Secret History of the Stock Market (Trends)
It all starts with a key moment in Wall Street’s history that highlights what’s really going and where those markets are headed…
KEY MOMENT: Nixon takes us off the gold standard on August 15, 1971 (by executive order)
Before this day, what has happening with Wall Street?
Well, in 1968 the Federal Reserve reported that less than 20% of American households owned stock.
That’s because when America was on the gold standard, Americans were savers.
Imagine if your paycheck automatically went into an account that grew every year. The more you saved, the more your savings grew, and every year your nest egg was worth more than the previous.
That would be pretty great right? Well, that’s what life was like for pre-1971 America.
Not only did “no risk” CDs and savings account pay around 5% interest, but the dollar itself became more valuable with time.
No wonder Americans were savers! Saving WORKED. It paid off. People could work, save, and retire.
Then Nixon took us off the gold standard, as a “temporary measure” in 1971.
1971 – 1999: The Golden Era of The Stock Market
After 1971, the whole game changed. The dollar started losing its value and the financial game changed in many ways.
The tax laws changed and Wall Street jumped on the opportunity to promote the tax savings of their IRAs and 401(k) accounts, conveniently funneling all that money into their products that generate commissions and fees for them.
Money flooded into Wall Street.
And you know what happens when there is more money going in than going out, right?
Yes, of course, the stock market goes up. And go up it certainly did.
How much, you ask? Let’s consult the MoneyChimp:
As you can see, the annualized ROI was 14.15%!
In fact if you hone into the 80s and 90s specifically, the annualized return was a whopping 17.99%!
(Let’s just call that 18%)
MAJOR INSIGHT: The 80s and 90s had astronomical returns, and that brought the “average stock market performance” way up!
What made the market go up?
More buying than selling of course!
In fact, that’s the ONLY thing that can make the stock market go up: more buying than selling.
This was a perfect combination of:
- The new tax laws that created IRAs and 401(k)s
- Americans went from being “no risk” SAVERS to risk-taking INVESTORS
- An enormous demographic bubble known as the “Baby Boomers” were in their prime years of earning and investing
It was the perfect trifecta, and for a few people, it turned every $100,000 investment into $3,093,697! See for yourself using my handy investment calculator here.
2000 – Present: The Dark Ages of Wall Street
So, if it’s been a 10% ROI since 1871, and the 80s and 90s brought 18% ROI… how much worse have the 2000s been?
Back to the MoneyChimp:
What does that really mean for a career?
Take a 40 year career of saving and investing $20k per year at 9% ROI…
…and you arrive at retirement with $7,365,837. See this for yourself with my investment return calculator here.
This is the first hint that Wall Street’s 9% ROI claim is a lie. How many people do you know who saved $9 million for retirement by putting $20k a year into Wall Street?
Change the 9% ROI to 4% and the same 40 year careers end in retirement with $1,976,531.
In other words, over 70% of your money is missing due to the Wall Street myth!
But the truth is even worse:
Virtually nobody even gets the 4% ROI!
Wall Street’s Secret: The returns don’t actually show up in the average investor’s account
Assuming that the average individual investor got 4% ROI from 2000 to 2015 is provably wrong.
That assumes that nobody sold off their stocks during a crash…
Which is circular logic. Remember the only thing that makes the markets go up? More buying than selling.
The only thing that makes the markets go DOWN is—you guessed it—more selling than buying.
For example in 2008, the crash is the EFFECT… CAUSED by more selling than buying.
And the stock market’s money is largely made up of the average investor’s money. The ultra wealthy don’t buy the stuff that your friendly neighborhood stock broker / financial planner sells.
So, as cheery as it feels to look at the positive returns of the whole market from 2000 to 2015 and say “at least it went up,” it isn’t real.
What’s real is YOUR account. And most people don’t realize how terrible their portfolio is doing because they keep pumping money in.
So here’s the bombshell:
The average investor’s actual modern stock market performance is NEGATIVE
That’s right, worse than putting cash under a mattress.
Selling CAUSED the 2008 crash. The market stopped moving downward when the selling stopped outweighing the buying.
So the stock market only went up after the average investor already unloaded their stock market holdings.
By definition, the average investor took the losses and missed the gains.
That’s what bear and bull markets are. The bear market is where the average guy loses money, and the bull market is the missed gains that entice him back in.
So where are we now?
The average investor has been enticed back in… but he (or she) is not going to like what happens next.
What will happen next?
The question is which scenario is more likely…
A) More buying than selling, or
B) More selling than buying
Let’s go back and see what forces INFLATED the stock market and see if we can depend on them happening again.
New tax laws from 1974 and 1981 – The effect of these laws have obviously passed. Plus investors are increasingly pursuing Self-Directed IRA and 401(k) accounts specifically to invest outside of Wall Street. The stock price inflating force of the tax laws has had its effect and passed.
Americans went from being savers to investors – If anything, investors are now trying to find LESS risk. This pursuit of more risk has run its course and no longer inflates the stock market
Demographics – This is the scary one. It deserves a closer look…
Demographics Destroy Wall Street’s Future
When Baby Boomers were in their prime earning, saving and investing years, that inflated the stock market (18% per year, or cumulatively +2700%).
The younger generations are much smaller than the Baby Boomers so they can’t do as much buying into Wall Street.
And the latest research suggests, they don’t want to own properties or invest anyways.
So in place of the Baby Boomers, you have less people earning less and investing less.
These are all stock market DEFLATING forces.
Then comes the nail in the coffin. Those same Boomers are not just easing up on putting money IN Wall Street… they are taking money OUT.
That’s always been the plan: retirement. Spend the money.
And that’s a real problem for the stock market. No matter how optimistic some people feel about Trump, there’s still going to be more selling than buying.
The best the Wall Street people can do is to slow down the carnage.
Already, in the modern era (2000 – Present), the stock market hasn’t even given people their money back, let alone grown it.
So the pundits and experts on TV continue to cheer on the stock market. It’s their job.
Don’t listen to them.
They told you Hillary would win the election, and they were wrong about that. Very, very wrong. In fact they said there was a 99% chance (literally) that she would win.
Do you want to sink your nest egg into their next prediction?
Historically it’s a terrible bet.
If you want to say NO to doubling down on an already losing bet, the good news is there’s another bet that’s been winning, and anyone with a portfolio of at least $100k can do it.
You can learn more about it here: