The Cost of Being a Multi-Millionaire
To our clients and associates,
The 3rd quarter started with much enthusiasm as the sentiment of an imminent recession was replaced with hopes of a soft landing only to be spoiled as higher interest rates lured investors from stocks to bonds.
We have been here before, and we will be here again. Switching narratives is a constant in the market and so is the volatility that comes with it.
Let’s say we have an investor who started saving $250 per month directly into the S&P 500 from February of 1970 to 2010, each year increasing her contribution by 3%. From there she pulls out $6,000 per month until today, each year increasing the withdrawal by 3%. For simplicity let’s assume no taxes or fees. What negative market conditions would she have endured when monitoring her portfolio along the way?
She did the right thing throughout her saving life, she tended to build up more and more wealth and was rewarded with a larger and larger nest egg. Most people can stomach a $4,900 loss, what about losing the cost of a Mercedes (60k) in 4 months or losing the value of a home over 2.5 years ($642k) or losing a lakefront property in a month ($1 million)?
Our investor would have seen the failure of the trade centers and financial institutions over 100 years old permanently closing their doors during the Great Financial Crisis. She most recently endured a shutdown of our economy during COVID and in the face of each crisis she would have kept faith and stayed invested.
These swings and how we handle them are the costs of being a multi-millionaire. Our hypothetical investor saved $225k over 40 years, has withdrawn nearly $1.2 million in retirement and still has a portfolio over $7.5 million, in part, due to her ability to endure difficult times. She achieved it by believing in the long-term potential of her investments and by holding steadfast in her conviction during turbulent times. As we navigate the challenges ahead, let her journey serve as a reminder of the rewards that patience, persistence, and resilience can bring.
Wishing you well!
Matt
Important Disclosures:
Please note This does not reflect actual investment results and is not a guarantee of future results. Therefore, hypothetical Performance cannot accurately consider the effects of taxes or fees. There are numerous financial risk factors related to the markets in general, or to the implementation of an investment strategy, which cannot be fully accounted for in hypothetical performance. These risk factors can adversely affect actual performance. Past performance is not indicative of future performance. Loss of principle and/or loss of portfolio value are possible.