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Rip Van Winkle And Market Returns

January 25, 2024

You may recall the story of Rip Van Winkle. He was a farmer who went into the mountains and met some dwarfs. They shared some liquor and he fell asleep for 20 years.

We’re not advocating that type of sleep for 20 years but we are advocating to look longer rather than shorter when it comes to market returns.

For instance, we know 2022 was a terrible year for stocks and bonds. Both were down substantially. Additionally, interest rates rose rapidly. Now move to 2023 where interest rates stabilized and the market increased.

If you slept from December 31, 2021, and woke up December 31, 2023, you would not have experienced the emotional ups and downs. According to Jeff Sommer’s article, “After a Rip-Roaring 2023, the Markets Are Taking a Breather” (Wall Street Journal), the S&P 500 for the two years combined returned 3.42% including dividends.

You also would have missed the inflation rise and subsequent fall. According to the US Inflation Calculator, inflation for the year 2022 was 6.5% and down to 3.1% for 2023.

There is no reliable crystal ball. We believe the best approach is to have a financial plan for the future and invest accordingly. If you are a good saver with reasonable expenses, how much risk do you need to take? Alternatively, if you need a larger safety net of assets, maybe you shouldn’t be overly conservative.

We’re available to discuss your situation.


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