GP Academy Letter 250808: The Truth About Stocks (Roll The Retirement Dice!)

Dear Friends,

Although not readily recognized as such, there are actually many different kinds of religion in this world.

There is organized religion itself which competes for belief capture and tithing parishioners who are encouraged to meet in pointy buildings, usually on Sundays.

There is the political religion called government where voters choose their personal flavor of voluntary servitude and the collection plate is replaced with the voting booth.

And there is the financial religion called investing where normally clear-headed people place remuneration from their labors into restrictive tax deferral programs like 401ks and IRAs which, by law, are not allowed to profit from declining markets.

Now is where the fun begins.

Imagine that you are 25 years old. You have just gotten your first non-horrible job and earning $30 an hour while still living with your parents.

You will now “invest” for the next 40 years, during which period it is a statistical near-certainty that the stock market will crash at least two or three times, if we define a crash as a drop of at least 25%.

Each stock market drop will cause your investments to sag and require a number of years from which to recover and crawl ever higher once again.

At last, the market finally heads higher than before and you can breathe again. But not so fast!

During those periods of no-growth, silently in the background, the purchasing power of your “nest egg” will steadily have been destroyed by about 6% a year, a pernicious phenomenon still referred to in polite circles as “inflation.”

Ergo, when the market does finally manage to recapture its previous high, the value of your investments (…like, what they’re actually worth?) may actually be lower than before the crash. So sad, but true.

And the outcome at age 65? This will depend entirely (here we introduce the element of randomness) on whether your 40 years of investing happened to coincide with periods of mostly:

a) Boisterous and booming market rises, or;
b) Prolonged stagflation, recession and other economic misfortune.

BIG POINT! — In other words, the primary, determining factor in your, personal, long term success as a passive, payroll contributing, employer-benefits-matching 401k investor will be when you were born.

This, my dear friends, is investing religion at its essence. Where hoping and praying replace technical market analysis, and your financial planner serves as priest and confessor (candles extra).

It even has an afterlife. We call this afterlife retirement.

Students:
This Sunday night I will present the truth about the stock market as a retirement mechanism, using charts and spreadsheets that I can pretty much guarantee you’ve never seen before.

I will also explain:

• How to avoid future market crashes.

• What to do with your 401k the next time the market does crash.

Not a Student?
Click HERE to enroll. Just $15 a month and you can quit any time. If ever not satisfied, your previous month’s tuition will be cheerfully refunded.

Gordon Phillips