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Days vs. Decades

Coronavirus pandemic, toilet paper shortages, sporting events cancelled, social gatherings shut down – the start of the new decade has ushered in shocking and unexpected disruptions. The impacts have been felt by everyone in some way. The economy has slowed dramatically, and your hard-saved retirement dollars have likely suffered as well. The question is: How should we think about it?

There are two charts above. As investors, we get to decide which one to focus on. Where you direct your focus will likely influence the investing decisions you make. The chart on the left covers the U.S. stock market movements from March 11, 2020 to March 26, 2020. A matter of days. The chart on the right displays the performance from January 1, 1950 to March 31, 2020. A matter of decades. The first goes down; the second goes up. Here’s an honest question: Which chart matters more to you?

Social media – and the media in general – directs our focus squarely on the left-hand chart. Recent headlines and news clips have been scary. They tell a story that makes you think things can only get worse from here. When it comes to your investments, you may feel a strong desire to do something, anything, to make the uncertainty and fear go away. In times like this, those feelings are natural.

But great investors utilize a helpful trick. They think in longer time periods. They lengthen their definition of the “recent past.” In short, they think in decades, not days. The chart on the right is where they place their focus. If you are young, time is on your side. Any losses will look insignificant in hindsight. But what if you are nearing retirement? Well, 65-year-olds today have a life expectancy of around 85. They have decades ahead of them. That makes them long-term investors, too, for a portion of their portfolios. They must invest in stocks to fuel the growth for their spending needs many years down the road.

To be fair, the chart on the right makes investing look easier than it really is. Holding steady through this multi-decade period would have been enormously challenging. An investor would have endured multiple wars, oil shocks, sky-high inflation, the bursting of the dot-com bubble, the Great Recession, and now the coronavirus pandemic. But look at the chart. The market recovered every single time. And this time will be no different. If you stay the course, you will be rewarded.

* A hat tip to Carl Richards, a wonderful financial writer, for the idea behind this article.

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