Investor Mistake: Assuming Scary Media Headlines Make It a Bad Time to Invest
AI's response in regular print | Beverly Hills, CFP®, Joe O'Boyle's in italics
“Investor Mistake: Assuming Scary Media Headlines Make it a Bad Time to Invest”
If you invested $10,000 into the S&P 500 stock index on some of the scarier days in history
—> just 10 years later your investment would have grown to:
Pearl Harbor was bombed - 12/7/41 —> you had $44,855 (16.2% annual return)
The Soviets launched Sputnik - 10/4/57 —> you had $31,387 (12.1% annual return)
President Kennedy assassinated - 11/22/63 —> you had $19,729 (7.0% annual return)
President Nixon resigned - 8/9/74 —> you had $33,517 (12.9% annual return)
Black Monday market crash - 10/19/87 —> you had $56,514 (18.9% annual return)
Lehman Brothers bankruptcy - 9/15/08 —> you had $30,193 (11.7% annual return)
The news headlines are often unnerving: Economic uncertainty, geopolitical strife, and market volatility seem to suggest that it might be a bad time to invest. But, surprisingly, history has shown that these moments, filled with apprehension and fear, often present some of the best opportunities for long-term stock investors.
Historical Resilience of the Stock Market
From the beginning, the stock market has been resilient, rebounding from every downturn it has encountered. In fact, the market's long-term trend, despite periods of volatility, has always been positive. It's important to remember that the markets move in cycles, and downturns are followed by upturns.
The assumption that negative headlines equate to poor investment conditions is often misleading. This belief could make you susceptible to a common investor mistake: sitting on the sidelines during times of perceived turmoil. But in reality, history shows that great investment opportunities often emerge when pessimism is at its peak.
If market declines make you nervous, you’re not alone. Bear markets (stock market declines of 20% or more) can be extremely difficult, but they can also be moments of opportunity. Investors who find the courage and conviction to stick to their long-term plans are often rewarded as markets bounce back.
Pearl Harbor and The Power of Persistence
Consider a hypothetical investment in the S&P 500 on December 7, 1941, the day Pearl Harbor was bombed, an event that thrust the United States into World War II and unleashed a wave of uncertainty and fear. Despite the global conflict and immense societal upheaval, someone who stayed invested in the S&P 500 stock index for the next 10 years would have averaged a 16% annual return.
This example underscores the importance of staying invested, even in the face of adverse circumstances and scary times. Perhaps even more incredibly, a one time $10,000 investment in the S&P 500 stock index on December 7th, 1941, would be worth an astounding $78,516,793 today (through 6/30/23).
Black Monday Market Crash | 22.6% One Day Decline
Consider yet another moment in history: The Black Monday market crash on October 19, 1987. This infamous day, known as "Black Monday," saw the Dow Jones Industrial Average (DJIA) fall 508 points, a devastating 22.6% drop in a single day. The largest single day drop in stock market history. Many investors were understandably shaken, feeling as though the financial world was collapsing. Yet, those who held their ground witnessed an impressive rebound.
A hypothetical one time investment of $10,000 in the S&P 500 stock index made on that nerve-racking day would have grown to over $56,000 over the next 10 years, and over $429,000 if held today (through 6/30/23) proving yet again that even in the face of severe market downturns, patient and long-term investors have historically been rewarded. This is a potent reminder that our reactions to market upheavals can have profound impacts on our long-term investment results.
The Lehman Brothers Collapse and the Recovery
Another poignant example is the financial crisis of 2008, initiated by the fall of Lehman Brothers. On September 15, 2008, Lehman Brothers declared bankruptcy, triggering a global financial meltdown and a tsunami of negative headlines. The fear and uncertainty were palpable, with many assuming it was the worst time to invest as things would likely get worse before getting better.
However, a hypothetical $10,000 investment in the S&P 500 stock index made on that very day would have grown to over $30,000 just ten years later. This investment growth happened despite the worst economic crisis since the Great Depression, illustrating that even during severe downturns, there are opportunities for investors who stay the course.
A Lesson from History
These scary days from history underscore a valuable lesson: negative news does not necessarily equate to bad investment conditions. Pessimistic times have often paved the way for some of the best long-term investing opportunities.
There have always been reasons not invest…
It's crucial to tune out the noise and maintain a long-term perspective. Markets are inherently volatile and react to a myriad of factors, including the potentially scary news of the day. But the temporary declines shouldn't deter long-term investors. By staying invested, you allow your investments the opportunity to grow and recover, even during periods of market turbulence.
In the end, making investment decisions based on today's headlines can lead to missing out on the long-term growth potential of the markets. It's time, not timing, that matters most when investing.
What did you think? How did AI do?
About OpenAI’s ChatGPT tool:
GPT (short for "Generative Pre-training Transformer") is a type of language model developed by OpenAI that is trained to generate human-like text. ChatGPT is specifically designed for generating text in a conversational style. It is a machine learning model and has been trained on large datasets of real-world conversations in order to learn the patterns and styles of human communication.
Joe O'Boyle is the founder and principal of O'Boyle Wealth Management, a full service financial planning and investment management firm, located in Beverly Hills, California. Joe O’Boyle was named to InvestmentNews 40 under 40 class of 2016, and has a catalog of financial planning and investing articles on Money.com & U.S. News. Disclosure information.