What if you bought at the top of the market in 1929 ...
... and then did nothing?
The short answer is that it would take you until 1954 to recover. That's index-value to index-value.
One of the ways the '30s is not like now is that dividend yields were much higher.
So if you just accumulated dividends, you'd have recovered by 1945. (RJ Shiller data).
This is a companion piece to dollar-cost averaging through the dot-com crash, so let's look at dollar-cost averaging across the great depression, starting 1929. Investing similar amounts each year and counting dividends, you'd be holding a profit by 1935.
But you'd also be holding giant reproductive organs of steel.
Flip it around: would someone who had lived through the Great Depression freak out in 2000 or 2009? Well, we have the next best thing: a bird's eye view of what happened, and we still sold.
Maybe every crash is different, except for the part where we all lose perspective and cash out.
If stories of market recovery will not prompt us to hold or buy into prolonged turmoil, then perhaps their function is more modest:
To remind us that everyday people survived the throes of panic, and to urge us to prepare ourselves for when we likewise act in fear.
... and then did nothing?
The short answer is that it would take you until 1954 to recover. That's index-value to index-value.
One of the ways the '30s is not like now is that dividend yields were much higher.
So if you just accumulated dividends, you'd have recovered by 1945. (RJ Shiller data).
This is a companion piece to dollar-cost averaging through the dot-com crash, so let's look at dollar-cost averaging across the great depression, starting 1929. Investing similar amounts each year and counting dividends, you'd be holding a profit by 1935.
But you'd also be holding giant reproductive organs of steel.
- First off, no one saw the crashes and depression of the 1930s, so it shook everyone's faith that anyone knew anything.
- Second, Hitler reestablished the Luftwaffe and Wehrmacht, violating the Treaty of Versailles and promising a sequel to the war to end all wars.
- Third, there was deflation in the U.S. CPI going backwards. Everything was losing value. Your house, your business, everything except gold.
Flip it around: would someone who had lived through the Great Depression freak out in 2000 or 2009? Well, we have the next best thing: a bird's eye view of what happened, and we still sold.
Maybe every crash is different, except for the part where we all lose perspective and cash out.
If stories of market recovery will not prompt us to hold or buy into prolonged turmoil, then perhaps their function is more modest:
To remind us that everyday people survived the throes of panic, and to urge us to prepare ourselves for when we likewise act in fear.
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