On occasion, a record will pivot to a steep decline (1987, 2000, 2007). However, relative to the frequency of highs, steep slides are rare. Selling stocks upon a new high is much likelier to mean foregone gain than foregone pain.
Bay Area natives have vivid memories of the tech bubble that burst in 2000. With mind-boggling house prices, cranes overtaking the S.F. skyline, and traffic popping up at any hour anywhere, it’s natural to wonder whether we’re reliving the turn of the century.
In 2016 and especially in 2015, a strengthening dollar detracted from U.S. investors’ international stock returns. This year, the opposite has happened. Historically, during periods when international stocks outperform U.S. stocks, a weakening dollar has been a major driver of returns.
That ignores the opportunity cost of lost growth. Every year of Isaac’s fee savings is invested. If Isaac earned 7.00% annualized for 30 years and Henry earned 6.75%, that 0.25% difference amounts to over half a million dollars! Compound interest: the 8th wonder of the world!
Typically, a prolonged run of gains breeds exuberance. Instead, memories of 2000 and 2008 are short-circuiting excitement. More than in bull markets past, clients ask about rich valuations and whether we are overdue for a downturn.