Breakout

This Month in Market History

Jeff Macke
Breakout

Welcome to this month in market history where we look at the past to profit in the future.

Summer 1932:

U.S. unemployment is over 24-percent. More than 20,000 World War I veterans are camped out in front of the White House demanding overdue bonuses. Dust storms are ravaging the plains.

As millions starve around the world, capitalism is increasingly regarded as a failed experiment.

81 years ago this month, the Dow Jones Industrial Average (^DJI) concluded its 90-percent decline, closing at 41.22. It would never see those lows again. In the next 18 months the Dow would gain 150-percent.

For those lucky few who bought that day it was an impressive trade, but the lesson here isn’t about calling the bottom of bear markets. History shows us that the real money is made not by timing but perseverance and consistency.

If your ancestors had managed to come up with $10 and gotten long the Dow, their investment would be worth about $3,700 today. That’s pretty good but a better inheritance is financial discipline to keep investing over time.

Had your great grandparents put $10 in the Dow 81 years ago this week, reinvested dividends and added $10 just once every year, $800 of invested capital would be worth more than $180,000 right now.

Obviously money was hard to come by during the Great Depression. Hard but not impossible. According to the government’s inflation calculator, $10 in 1932 had the same buying power as $170 today. If you had to come up with $170 every year to put away for your future could you do it?

I bet you could.

This month in history shows us that successful investing is a matter of time, discipline and a dash of optimism.

There’s always a reason to be bearish but over time the only way to make money investing in America has been by betting on America.

Keep that in mind the next time you're tempted to pull your money out of the market because of the latest frightening headline.

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