Winston Churchill said it, ” Those who fail to learn from the past are doomed to repeat it!” Today I want to solemnly remember the Crash of 1929. You see it was on this day some eight decades ago that the market hit an all time high only to find it about 2 months later falling 40%. Once you read this you’ll see that market conditions TODAY are mirroring past conditions that lead to some of the worst market collapses in history. I BEG YOU… please read this and learn the lessons. This is NOT a time to be taking this “DRAGON” lightly.
Since we need to learn from the past, I wanted to share some of the history from past collapses. (Excerpts from “Market Volume”.)
The Crash of 1929
On September 4, 1929, the stock market hit an all-time high. On October 29, 1929, the stock market dropped 11.5%, bringing the Dow 39.6% off its high.
After the crash, the stock market mounted a slow comeback. By the summer of 1930, the market was up 30% from the crash low. But by July 1932, the stock market hit a low that made the 1929 crash look like a picnic. By the summer of 1932, the Dow had lost almost 89% of its value and traded more than 50% below the low it had reached on October 29, 1929. following is a look at the days following the initial panic!
October 24, 1929 – Black Thursday
The stock market really crashed over a period of five days. The first sign of trouble was on Black Thursday – October 24th, 1929. At that time, the stock exchange typically traded around 4 million shares each trading day. But on Black Thursday, a record 12.9 million shares were exchanged.
The systems for tracking the market prices could not keep up with the trading volume and that may have contributed to panic selling on that day. At one point, ticker tapes were running nearly 90 minutes behind the market. By the end of the day, the market had fallen 33 points or around 9%.
October 28, 1929 – Black Monday
Following Black Thursday, the market bounced back a bit on Friday. This lead to a sense of security over the weekend as investors felt the market could rebound. However, market conditions quickly deteriorated again on Black Monday – October 28th, 1929 – and high trading volumes once again put pressure on the flow of information.
On Black Monday, trading volumes were near 9.25 million shares and market confidence declined sharply. By the end of the day, the market was down another 13%.
October 29, 1929 – Black Tuesday
Black Tuesday – October 29th, 1929 – is that day that most historians agree dealt the final blow to the Roaring 20s and was the starting point of the Great Depression. On Black Tuesday, a record 16.4 million shares changed hands. The ticker tape machines fell behind by nearly 3 hours. With all hopes of a market recovery now gone, panic selling continued and the market fell another 12%.
Recovering from the 1929 Stock Market Crash
Over the next month the market continued to decline sharply, however, the market would not bottom out until July 1932, when the Dow hit 41 from a high of 381 in 1929. That’s a decline of nearly 90%! Even as the market started to rise in 1932, it would take another 22 years before the Dow would climb above the levels seen in 1929.
In total, 14 billion dollars of wealth were lost during the market crash.
The Crash of 1987
The markets hit a new high on August 25, 1987 when the Dow hit a record 2722.44 points. Then, the Dow started to head down. On October 19, 1987, the stock market crashed. The Dow dropped 508 points or 22.6% in a single trading day. This was a drop of 36.7% from its high on August 25, 1987.
During this crash, 1/2 trillion dollars of wealth were erased.
The Crash of 2000
From 1992-2000, the markets and the economy experienced a period of record expansion. On September 1, 2000, the NASDAQ traded at 4234.33. From September 2000 to January 2, 2001, the NASDAQ dropped 45.9%. In October 2002, the NASDAQ dropped to as low as 1,108.49 – a 78.4% decline from its all-time high of 5,132.52, the level it had established in March 2000. TO DATE IT’S NEVER COME BACK TO IT’S ALL TIME HIGH!
A total of 8 trillion dollars of wealth was lost in the crash of 2000.
Crash of 2008
We hit another milestone in ’09. The market had fallen farther faster than it did during the Great Crash of 1929-1932.
The stock market peaked on Oct. 9, 2007. Then, the S.&P. 500 went down 56 percent and the Dow -53 percent.
On Jan. 29, 1931 — the identical number of days after the 1929 market peak — the S.&P. 500 was down 49 percent and the Dow was down 56 percent. The 1929 crash got off to a much faster start, but we have now more or less caught up.
HERE ARE SOME THINGS TO CONSIDER:
1) Note that it continually refers to the amount of money LOST at the end of the downturn. THAT’S BECAUSE IT WAS LOST!! In other words, as in never to be found again. Why is this an important distinction? Because I hear people all the time say, “Oh, I just lost it on paper.” or “Well I didn’t lose my principal!” Like somehow what you LOST was not real money!
LET’S GET REAL COULD WE PLEASE! If you had taken the money out before you didn’t lose your principal YOU’D HAVE HAD A HECK OF A LOT MORE MONEY WOULDN’T YOU? So just face it YOU BLEW IT! You lost it and can’t ever get it back. Did you lose money in 2000-03 – how ’bout ’08? HOW MUCH WOULD YOU NOW HAVE IF YOU’D NEVER LOST IT IN THE FIRST PLACE? Are you back “even” yet? If not, why are you using the same strategies and expecting to get a different result? (Einstein said that was the definition of insanity. So ARE YOU INSANE?!) I don’t think so. You just don’t know you have an alternative. (and there is an alternative)
This principal of avoiding losses is called taking advantage of OPPORTUNITY COST. In other words, if you never lose the money it will continue to earn interest for your benefit; you earn interest on your money, interest on the interest and interest on the money you would have lost but instead were wise enough to preserve; opportunity cost. Other OC besides losses, are fees and taxes that can be avoided.
2) THE MARKET IS COMING BACK! Really? It hasn’t come back from 2000 yet! What makes you think things are going to get better any time soon? You’ll notice that in most cases the market gave the impression that it was on the rise only to fall lower than the first crash. And in most cases the second crash is worse than the first. FOLKS, I BLIEVE THAT’S WHAT WE’RE HEADED FOR! If history repeats, and it usually does, we’re coming up on a worse collapse than the first. It doesn’t take a genius to look at economic conditions, which are NOT improving, and know that something has to give. Please, don’t let your retirement savings be the sacrificial lamb!
Most of you have been smart enough to move out of the market by now, although there are some I’ve talked to that, to their peril, are for whatever reason sticking it out and risking it all! Congrats to those of you who at least moved to money market or CD’s. Though there’s a problem with that as well.
The problem is your now are NOT making enough to keep up with future inflation AND the number of banks that are in trouble are at an all time high and more to come. Here’s anther lesson from history in case you missed it; during the Great Depression the banking industry lost 44% or 10,000 banks! There are currently 829 banks on the watch list; more than we’ve seen in several decades. What if history repeats? How much will you lose? Maybe everything? The fact that it’s a possibility should be enough to make you want to find a better solution.
Life Insurance products! Oh, I know over the years they’ve gotten a bad name for who know what reasons. But before you tune me out here’s another history lesson for you; during the Great Depression that spanned 24 years, the insurance industry only lost 6/10 of one percent of it’s net worth and NOT ONE PERSON WITH AN ANNUITY LOST A DIME! That’s a pretty decent record I’d say… wouldn’t you? Here are some of the options:
* Indexed Universal Life Insurance – buy dollars with pennies, offers Tax free retirement income as well as offering a Tax Free death benefit to your heirs, tax benefits – interest tied to index for market like returns with NO RISK OF LOSS GUARANTEED!
* SPIA’s – Single Premium Immediate Annuities – Turn a lump sum of cash into a lifetime income stream – Personal Pension, if you would – exclusion ratio reduces taxes
* Fixed Annuities – Shorter terms, high interest rates than CD’s or Money Market, Tax deferred, Income guaranteed for life
* Fixed Indexed Annuities - Same as Fixed but interest earning tied to an index to give higher yield with the market WITH NO LOSS GUARANTEED! Some longer terms but offering high interest potential – bonus offers from 4-20% added to your funds up front
* NEW income riders can be attached to some annuity products giving you a guaranteed income stream for life WITHOUT ANNUITIZATION allowing you access, use and control of your money – 4-10% GUARANTEED MINIMUM INTEREST RATES for income on some products – some offer income enhancements as high as 2x income for Long Term Care with NO underwritting
These are just a few ideas. There are many more concepts, many I’ve discussed in other posts. I hope this helps. If you need more information or would like to see how these products might enhance your current plan please -
REQUEST A FREE RETIREMENT & INCOME PLAN ANALYSIS!
I can show you how long your money will last and the effects of inflation, death of a spouse, Long Term Care and other factors to your income. ALL AT NO COST OR OBLIGATION!
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