The idea of miraculous events or phenomena has always fascinated the human race. People are drawn to stories of amazing things that seem too good to be true. Something in the human heart and spirit wants to believe that good and positive things beyond our scope of understanding can and do happen to everyday people.
Source: Amazon
In doing a brief online search for the term, It’s a Miracle, I came across two songs with that title. The first is from Barry Manilow’s second album in 1975, and the second is from Culture Club's 1983 Colour by Numbers album. There was a faith-based TV show of that title that aired from September 1998 to August 2006, which was hosted by Richard Thomas, TV's John Boy from the Waltons. On a funnier note, there was even a horse named Miracle that saved Mel Brooks and his companions anytime they called his name in the movie History of the World, Part I.
From my seat as a CFP and CEO of Impel Wealth Management, I would like to submit to you that the most miraculous things I have seen in my more than 35 years of doing this are the miracles of time and compound interest. I will end this blog post with an observation from someone much smarter than me that will help confirm my thesis.
As you may recall, I started my career as a financial advisor in August 1987. At that time, the stock market had been on a tear. In the five years from August 1982 to August 1987, the Dow Jones Industrial Average, DJIA, rose from 776 to an all-time high of 2722. When I started in the business, I was taught to run financial projections using "a conservative " 12% rate of return. At that time, international stocks had also been ripping higher, and some market strategies were suggesting that people allocate their portfolios 50% to US stocks and 50% to foreign stocks, so they could "be well diversified".
All of this euphoria and optimism came crashing down on Monday, October 19th, when stock markets around the globe experienced what has now become known as Black Monday. The DJIA fell 508 points or 23%, closing at 1739. This was the largest one-day loss in stock market history, and it wiped out more than $500 billion of market capitalization from US stocks. I still have the Wall Street Journal from the next day, which is pictured below. I kept a copy because I thought it might have historical significance, even though I was barely 22 years old at the time.
Source: Jesse's File Cabinet
So where does the miraculous part begin? Great question! Let’s explore this further now. You see, the market recovered 288 points, or 57% of the initial loss, in the next two days. Less than two years later, the DJIA had surpassed its high mark of 2722. It didn’t take long for articles to begin showing that predicted the DJIA would reach the 10,000-point milestone before the turn of the millennium.
Most people scoffed. They thought this was an impossibly high number to achieve. Remember, the Dow first crossed the 1000-point mark on November 14, 1972. Due to ongoing economic malaise and stagflation, it had languished just above or below 1000 for most of the next 10 years.
What most people thought was a pie-in-the-sky prediction turned out to be an investment reality when the DJIA reached the 10,000-point milestone on March 29, 1999, as we neared the peak of the dot.com mania. In reality, this miracle was simply driven by time and compounding working together. The market averaged just over 12% rate of return from 1989 to 1999 to reach this milestone.
As markets experienced various economic and geopolitical crises over the ensuing 24 years, the miracles of compounding continued working their miracles. In doing research on investment history, I recently came across an article from CNBC dated July 10, 2018. At the time, the DJIA was just over 25,000. The article's contributor stated why they thought the Dow would hit 40,000 by 2025. A link to the article is included below.
Here's Why the Dow Will Hit 40,000 by 2025
Despite the article's sound economic arguments and thesis, it was really just the miracles of compounding and time that would make this happen. At the end of the day, the market needed to compound at less than 7% a year to reach that level, something that it recently attained a few months ahead of the predictions, as you can see below.
Source: BigCharts
I have recently seen articles predicting the Dow hitting 60,000 by 2030 or even reaching 100,000 by some point in the future. As these predictions of unimaginably large numbers draw people's attention, there is nothing miraculous or unattainable about this. It is simply compounding and time. As I promised earlier, I want to close with an observation from someone much smarter than me about the miracle of compound interest over time.
Source: LinkedIn
I would never contradict Albert Einstein's wisdom and intellect. I thought this was a great message to share with you, our trusted friends and clients. It is an important reminder of what really builds wealth over time: the uninterrupted compounding of interest. Please share this important message with your friends and loved ones as we continue "Moving Life Forward."
© 2024 Jesse Hurst
Senior Wealth Manager and CEO
The views stated are not necessarily the opinion of Cetera and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.
Investors cannot directly invest in indices.
Featured blog image source: iStock.com/elinedesignservices