What does baby food and investing have in common?
Millennials have grown up during a time when the stock market has practically always gone up. It’s gone up in 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016 and 2017; nine years in a row. Well, welcome 2018 when they have finally experienced a major bump in the road, in what has probably seemed to them, an ever increasing Dow.
Here’s a little education for the young investor. Returns are an interesting animal, because they don’t always come from profits and losses, as noted by Warren Buffett recently in his annual letter to Berkshire Hathaway shareholders when he wrote the following: “A large portion of our gain did not come from anything we accomplished at Berkshire. The $65 billion gain is nonetheless real — rest assured of that. But only $36 billion came from Berkshire’s operations.” Where did the remaining $29 billion dollars come from? It came from the new U.S. tax code. So, how real are the actual returns?
The market goes up and the market goes down, as much as 90% down during the Great Depression in the 1930s or 54% down during the Great Recession that happened just a decade ago. I am not predicting any correction near that today, but honestly new investors who are still on baby food investing can become somewhat nauseous during the recent downturns we’ve experienced. With time and more solid food, some spicy food, some exotic food and yes, occasionally some antacids along the way, an experienced, mature investor can become more able to tolerate market downturns or corrections.
If you can’t stomach the market, perhaps it’s time to go back to baby food, so you won’t chock on the solid foods of the market.
