Dear Dave: Stock market roller coaster? You are so right!

Dave — You had sage advice about the stock market roller coaster last week. You only get injured if you jump off.

But I’ll go a little further.

You only get heartburn (about the stock market) if you check it constantly.  This is especially true when there is a ton of media hysteria.  I heard you say on a recent show that the media has only focused on the market drops of late, mostly for political reasons.

So true, as this article points out (it’s a great look at the intersection of the 2018 Winter Olympics and the past week’s stock market gyrations).

But there’s more, Dave because as you point out, most of the time the stock market is not so much like a roller coaster.  It’s more like a set of stairs that climb upward.

The key is to take a long perspective.  If people will listen to you long enough, they will hear you actually define how long “long enough” really is.

Five years, at least that is what you say.  You say that because over time the stock market has never stayed down.  Yes, there are some bad years and yes there are some market routes.  We have seen those this week.

But time is your friend when you invest.  The time value of money plays to every saver and investor’s favor.

You have amazing consistency when you speak about investing, and it is always with the long view in mind. Your listeners are encouraged to invest their IRAs, Roth IRAs,401-Ks and 403bs in “good growth stock mutual funds”.  While you don’t make specific recommendations about funds, you always describe the kind of funds to look for.  You do this to lower risk.

Dave, you tell us to look for mutual funds that have consistently outperformed the market average (i.e. the S&P 500) over long periods of time…the longer the better.  Yes, you do suggest the types of mutual funds to park money in for the long haul, but that’s for us to talk about in another letter.

I did a little looking to see what last week looks like compared to different periods of time.  Roller coasters that mostly go up don’t look nearly as scary.

stock market roller coaster
Dow Jones Industrial Average over 1 year’s time. The solid line is the 50-day moving average.

The upward growth is never a guarantee of future growth of your investments, but as you point out, the stock market tends to go up more over time than not. However, this is why you don’t encourage people to park money in mutual funds for short periods.  Like last week, if you are needing the money in less than 5 year’s time, last week looks much different.  You don’t have the benefit of a longer time horizon to let your money grow back.

That’s why you suggest a simple savings account if someone needs to use the funds in less than five year’s time.  And, that’s also why you suggest a  longer time frame for any mutual fund investments.

Speaking of a longer time frame, what does a longer time frame look like for the stock market, say the last 10 years?

stock market roller coaster
Dow Jones Industrial Average for the last 10 years, with 50-day moving average

So Dave, I didn’t jump off the stock market roller coaster, and I don’t plan to!  Heck, I don’t even look at the numbers.   As you have said more than once…you only get hurt if you actually jump from the roller coaster.

Until later,




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