Here are 7 of the biggest risks of financial markets in the last 100 years:
1. After the Roaring 20s, the US stock market peaked in September 1929. Over the next three years, the stock market would fall 86%.
A $1 million portfolio would turn into $140,000.
2. The inflation of the 1970s was absolutely brutal for both households and investors. The inflation rate averaged around 8% during that decade; this was higher than the returns on both U.S. stocks and government bonds.
From 1966 to 1981, the U.S. stock market lost money on an inflation-adjusted basis.
3. US stocks have finished the month down 20% or worse six times in the last 100 years:
- September 1931 -29.7%
- March 1938 -24.9%
- May 1940 -22.9%
- May 1932 -22.0%
- October 1987 -21.5%
- April 1932 -20.0%
There have been four times when the stock market dropped 10% or worse in a single day.
4. The US stock market experienced a lost decade in the first 10 years of the 21st century. The S&P 500 lost about 10% overall from 2000 to 2009; The two biggest crashes in history were followed by two recessions.
5. Not to be outdone, the Japanese stock market wasn’t just happy with a lost decade. After a strong bubble in the 1980s, the Nikkei peaked at the end of 1989.
It didn’t technically hit bottom until March 2009.
Surprisingly, 34 years later, new heights were not reached until 2024.
6. By my calculations, there have been 14 recession-induced bear markets since 1928. The average decline in bear markets in this recession was -39.4%.
7. Since 1950, the S&P 500 has reached an all-time high on 7% of all trading days. In other words, 93 percent of the market was in decline.
More than a third of the time, the stock market fell 10% or worse.
The market spent about 17% of the time down 20% or more from all-time highs.
I could continue this list. There has been a lot of pain in financial markets over the years.
How do you plan for such market upsets?
Could we experience similar market environments in the future?
How do you survive in a Japan-like situation?
How do you manage risk at different stages of life and wealth?
How do you create a resilient portfolio that will allow you to weather some turmoil?
What risks are worth taking?
How much risk is required to achieve your financial goals?
How do you protect your portfolio from your own behavior?
These are the questions I try to answer in my new book: Risk and Reward: How to deal with market volatility and build long-term wealth..
The book is now available. You can buy from anywhere Here.
I’ve been writing and thinking about the ideas in this book for basically the last 12 years.
The book covers the two most important variables every investor should consider:
1. Your risk profile.
2. Your time horizon.
I always enjoy using stories and analogies to simplify complex topics, but the book also has lots of visuals.
I put my best charts, tables, and data into Risk & Reward so I wanted everything to look clean. Graphic Kid Matt It all helped me format it so it looked great and was easy to read.
There are over 50 charts, tables, graphs and other visuals inside this thing.
While I was in the studio recording the audio version of the book, I had a producer in my ear from London.1
About halfway through reading the book, we took a break and he said something like this: As someone who is not an expert in finance, I must admit that the market history in your book is a bit worrying. But I also appreciate the context and long-term perspective you provide on these terrible events.
That’s the idea of the book.
Risk and reward are attached at the hip. Every investment decision you make involves trade-offs.
I wrote this book to provide a market history lesson on the many risks that arise when investing in financial markets.
I wrote this book to remind you that the long-term rewards are ultimately worth the uncomfortable short-term risks.
I wrote this book to help you avoid the inevitable risks we face in the future.
you can buy the book now.
1My publisher, Harriman House, is located across the lake.
