Episode #34 – The DOW for the last 100 years


Hi everyone, welcome to another wealthy and wise Wednesday, glad you can join me today on this podcast and video, hope is going well for you. Today, I am going to spend quite a bit of time on this chart that I was recently given and I think it is pretty telling for a lot of different reasons. You know we have kind of got this mindset that wall street keeps us in, you know a few weeks ago, I shared you that cartoon of how wall street just want to keep you in the traffic, dodging cars, going towards wealth right down the middle of wall street and taking all that risk and those time where it is time to get out of traffic and I kind of want to depict this, showing you this chart because it is critical that there are times in your life based on what you are trying to do and where you are at. Maybe you want to be out of the traffic

[00:01:23] and there are ways to do that and unfortunately a lot of advisers’ kind of missed this and don’t really use this as part of a particular strategy. So let me kind of show you how this chart works, how it looks and then kind of talked about it based on where you are at, what stage of life you are in and some of things that you probably have to concerned about to make sure your money is going to be there when you need and would last as long as you do if not longer. Okay, so I am just going to bounce over my computer and put this chart and we will talk about it from there. Okay what we are seeing here is [00:02:07] industrial average from 1896 to 2016 and you might not be able to read a lot these little, they are basically things that happened and they occurred in the economy

[00:02:23] along the way like for instance the one at the very top, number one is it says Ford basically Ford build the first assembly line in Detroit and then as you can go down you can see Russian, Japanese war and you get the Titanic sinking and you get basically all these events throughout history going on but what I really want you to focus on are these recovery times in the given period that we have seen market drops and you can see the very first one going back basically from 1900- about 1906. We had a pretty good market increase

[00:03:23] and then about 1906 we had a 19 years’ period of time where the market just ran flat all the way to about 1924/5 and then we really started with the market and what basically happened there just to kind of refresh our memory. That is when borrowing and merging first came about. People could go out and leverage one dollar. I can’t remember exactly what it is but I think they could get you know 10-1 on their leverage so it might have been 5-1 but the point is you can take a dollar and go buy $5 or $10 worth of stock, so huge leverage was going on and that is what drove that market up from about 1925-1929

[00:04:23] when we ultimately saw the next crash, so basically between 1900 and 1925, 19 of the years were just basically recovery years just going sideways and drop, climb a little and drop and really never got anywhere. When the crash occurred in 1929, that dropped the market all the way back down to levels that we are seeing in early 1900. So it wiped away about 30 years of market and then to get back to where it was in 1929, the recovery time took 25 years, so looking at it from our perspective, if you retire in 1929 or were trying to retire in 1929 and you had a $100000

[00:05:23] it took 25 years for your money to be worth a 100000 again. And again you can see all the different things that went on, we are price controls, we had Pearl Harbor, France Falls, World war 1, let’s see what else went on in that period of time, steel workers strike, the Korean war, I mean all kind of stuff are [00:05:49] suffers a heart attack and you can see all the different things that happened from 1931 to basically 1955 and that you know 25-year period of time is when the market just basically was in recovery mode. So a thousand dollars in 1929, took 25 years to become a $100000. Then we fast forward, we had some pretty good years, we recovered and we get out of that until the 70s

[00:06:23] and then it looks like about you know ’70/71, we had another sideways movement where it takes a 16 years to get out of that trap, so from about 1970 to 1986 and this is where we have got all kind of things going on with inflation and then what else, we got president [00:06:51] we have got the Panama Canal treaties, I mean all kind of stuff going on from 70-87 where we just don’t really don’t really do anything. So again if you are one of those people looking to retire around 1970 and the market had been doing good for you, you went sideways pretty much your entire retirement time.

[00:07:20] And these I might point out is a good time to reiterate what is called sequence of return. This is extremely important to understand if you are going to be retiring say in the next 5,8,10 years and the reason is this, if you happen to retire and you are going to keep your money involved in the stock market at least to a certain extent and you are also going to try to live off of the income, dividends, or distribution of some sort coming off there. What you must understand is that if you take out money and we also have some sort of a market drop, that is like a double whammy and that can just basically get you in the situation where you could run out of money so much quicker than projected. So it is really easy for us to say oh, market goes up 10% on average

[00:08:23] so you are going to be fine taking out 5 or 6% every year and you should be just fine. The problem is thinking about retiring in 1929 and everything is great and you got all of these money, you start taking distribution and the market crashes. So the chances of your money lasting throughout your life expectancy just gets more slim when those markets continue to go sideways. Sideways and down is just horrible for people who are trying to live off their money. Obviously if we are in 1970 and you can see that it just basically is up and down but more or less a sideways market for 16 years and you are taking distributions, chances are you are running out of money pretty quickly.

[00:09:19] Well we all know what happened but I guess we don’t all know and I assume everybody is my age and we know that we had the Reagan Bush years where the 80s and the market just went crazy and all of a sudden we go from about 1980something and almost till the 2000 we end up going up pretty quick and pretty straight. And then here comes all things like the .com [00:09:56] where we end up losing tons like trillions of dollars in the market almost overnight from that but then we recover from it and this last one going back to like 2008, it has been a six years recovery time and then if once again we think about when you potentially retire if you would have retired in 2007

[00:10:24] let’s say, everything is looking great and you have got your money [00:10:27] you start taking distribution and then all of a sudden 2008 with the credit crisis and the financial debacle and all of the failures of banks and market just tense and now you have not only taken money out of 401k but also lost about 40-50% of that value, you may not have time to recover and this has been a long 6 years period of time before we get back to where are. And then now we have escalated once again and the reason why this chart is kind of a good chart to look at right now is because of what the market has done this last week or two. Where we have given up quite a bit of growth pretty quickly and again if you are taking money out and spending it, distributions and watching it drop in value

[00:11:25] you could again once run out of money before you run out of life. Okay so what is the moral of the story here and what can we do about it. Well this is where we can talk about the type of investments that you can go up with the market but never down and the worst year that you will have are sideways and best or better than that is that even when you decide to lock in an income that you can’t outlive that can never go against you no matter what the market do. So you can make sure and insure yourself that you can an income that you can’t outlive. In the meantime, if we have a 2008, if we have a 1929, if we have a 2000 where the market drops substantially then we are not going to lose.

[00:12:23] Our worst year is the flat year and so we don’t have to worry about these huge stock market losses and if the market continues to grow and still go up, we get to participate on the outside as well. Now who is this good for, is it good for a 20 years old or even a 30 years old. It probably not, this is more for people who are within that 8-10 years range before they are going to retire and just want to get out of the traffic, make sure that their money is going to be there for them and then obviously make sure that they have an income that they can’t outlive. So those are some important details if you will and things to keep in mind as you near retirement, where are you going to get your pay cheque, are you going to involved to a market and then finally is that pay cheque going to last you the rest of your life?

[00:13:25] And I like to use what is called the pay-cheque which is really good but then how would you like to have a play cheque as well or you can just have fun, enjoy life, vacation, go see family and never have to worry about that and just enjoy your play day because remember in retirement for the most part, every day is Saturday and every day is an opportunity where you can enjoy your life and do some fun stuffs if you have a play-cheque along with a pay-cheque, it can make for a very happy and exciting retirement. So I hope this was informative, so you kind of see you know if you are in your 20s and a market crashes, you are probably going to be okay. Maybe in your 30s, you start getting in your 50s and you start thinking about [00:14:18] of 15 years’ recovery time. That could get kind of scary

[00:14:22] and ultimately if you are within five years of retirement, you may want to be dialing back the risk and get out of that traffic and find better ways to make sure your money is going to be there for you when you retire. So I hope that was informative, kind of really opened your eyes to maybe where we are at and maybe where you should be. So anyway any questions that you have regarding just about anything financial send them to questions@wisemoneytools.come. I will answer them just as quick as I can and in the meantime, if you have any suggestions, ideas, topics you want to talk about. Feel free to send those in as well, we love to hear from you and so love the comments and the feedbacks and appreciate it, these podcasts and videos are helping [00:15:15] so that is it for this week, turn next week. Take care.

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