Stocks: In the long run, we're all dead

Some years ago a friend had bought GM shares for $9. The day we talked, it was $3 a share. "Get rid of it," I said. "$3 is better than $0."

But he'd been drinking the Koolaid: "I want to wait until it gets back to $9" he said. That's the sunk-cost fallacy; what he paid for the stock has no relevance whatsoever. "And after all, it's General Motors, it's GOT to go back up."

"No," said I. "It is just as likely to drop to zero and your holdings will be wiped out."

The outcome was that GM filed for bankruptcy and stockholders were wiped out, including my friend.

Fast forward to this week. The news is abuzz with the Dow reaching a new all time high. But that's sort of like finishing a 26-mile marathon race is 13 years' time....not impressive.

In nearly 200 years of recorded stock-market history, no calendar decade has seen such a dismal performance as the 2000s. Read that sentence again; the decade of the 2000s was the worst ever, period, including the Great Depression. During the 2000s, investors would have been better off investing in pretty much anything else, from bonds to gold or even just stuffing money under a mattress. Since the end of 1999, stocks traded on the New York Stock Exchange had lost an average of 0.5% a year by the end of the decade.

Of course investment gains or losses depend on when you entered the market! There's recently been a run-up that is good if you bought in at the market low of around 6,000 a couple years ago, after stocks crashed and lost well over 50% of their value. The cruel math of losing money is that if you lost 50% as so many retirement savers did, you have to achieve a 100% market gain JUST to get back to where you were (do the math). These are round numbers; the actual crash was considerably worse than these numbers portray.

So, if you had a 401(k) in 2000 and put nothing into it for the past 12+ years until today, your average annual return is about 1.6 percent, including the recent bull run-up and the record high.  Given the volatility and risk associated with stock investing, that's not very good. And that's without investment costs factored in -- your 401(k) fees and such. I got tired of putting money in and having less when I got my statement.

The stock market is simply a casino; it is no different at all. Some win, others lose, the house always gets a cut either way.

A better bet: An annuity with an income guarantee. I have a variable annuity that locks in stock market gains during bull markets, and guarantees a 6% payout even if stocks drop. It's a form of insurance against ever losing money -- insurance that costs me a 1% fee.

We've all been duped by an industry that sold us on the market as a good long-term investment. "Buy and hold...."  But if you were in your 40s or 50s in 2000 and are saving for retirement now, you don't have a long term. In the long run, as an economist once said, we're all dead.

Steve Cebalt, Highview LLC
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