Since 1928, the market has returned over 10% annually — but the average investor only earns about 5%. In this video, I break down the data on market crashes, intra-year drawdowns, and why we're almost guaranteed to see another crash — and why that shouldn't change your retirement plan. I'll show you the real numbers behind all-time highs, the Peter Lynch paradox, and the emotional mistakes that cost retirees the most money.
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Hey, welcome to another episode of Retirement Made Simple.
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I'm your host, Kevin Lum. I'm a certified financial
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planner based in Los Angeles, and this podcast is dedicated to
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helping a million people retire without worry.
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As a quick reminder, every episode here comes straight from
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our YouTube channel. So this is just the audio so you
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can listen while you're walking, driving, or living your life.
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Let's dive in. How can I retire with the coming
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Great Depression? That's how someone responded to
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one of my recent videos on 6 Reasons to Attire.
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And while that comment was a bit extreme, there's a lot of
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anxiety around the future of the market.
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I recently sent a note to clients giving my thoughts on
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current events, and I said something along the lines of we
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have prepared your portfolio for much worse events than what
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we're currently encountering. So far, this is just a blimp on
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the radar. And so today I want to tell you
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why we're almost guaranteed another market crash and why you
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shouldn't be worried about it. Now, before I dive in, I should
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say this is not investment advice.
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I'm just a guy on the Internet who likes to run his mouth.
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I said something like that once and someone replied, but I
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thought you were a financial advisor, to which I said I am a
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financial advisor. I'm just not your financial
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advisor. Now, I don't typically talk
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about markets and investing, but over the next two weeks I want
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to talk about investing in markets because I think there
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are some blind spots that hurt a lot of investors and hurt
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retirees. Since 1928, the US markets have
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had an annualized return of somewhere around 10 1/2%,
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Meaning if you put $100 in the market in 1928 and you came back
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and checked the account today, you would have $1.3 million in
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your account, assuming you had reinvested dividends.
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Not bad, but it gets even better.
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Since 2009, the markets have compounded at nearly 15% a year
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annualized, which almost none of the smartest minds on Wall
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Street could have predicted. But behind those numbers, there
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have been a lot of bumps in the road, and those bumps and the
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emotions they create cause investors to lose significant
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amounts of money. So today I want to give you some
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concrete data and some actual numbers around what happens with
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market volatility. Now we know markets typically go
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up. Over the past 100 years, the US
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markets have been up 75% of the time.
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But what we don't think about is the fact that markets are often
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down a significant amount of the time on an intra year basis.
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So even if the market is up for the year, it is very likely that
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there was a large drawdown at some point during the year.
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And here is a very interesting data point.
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Since 1928, the average entry year drawdown was 16.4%, meaning
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that at some point during the year on average markets were
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down over 16%, even though during that same period the
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market ended the year positive nearly 75% of the time.
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Now I should mention if you look at more recent data, so you
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don't start with 1928, but you start with 1980, the year I was
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born, the average intra year market drop is 14.1%.
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So it is lessening. But let me make these numbers a
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bit more concrete and a little closer to our lifetime since
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most of you watching probably weren't investing in 1928 since
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1980. So over the last 46 years, the
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market has been down 10% or more, nearly 50 percent of the
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years, meaning that out of the past 46 years, the market was
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down 10% or more at some point during the year in 26 of those
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years. So over the past 45 or 46 years,
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if you were investing and watching the market at some
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point during those years, the market was down by 10% or more
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into a year. And 10% is not an insignificant
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draw down. If you have a $2
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portfolio, that's $200. It's real money, but it gets
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even worse from 2000 to this year.
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So over the past 25 to 26 years, the market was down entry year
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by 10% or more 58% of the time. So over the past 25 years was
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down 10% or more in 15 of those 25 years, But it gets even
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worse. The market was down by 19
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percent or more 33% of the time, meaning that in nine of the past
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25 years, at some point entry year, the market was down 20% or
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more. Let me say that again.
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In nine of the past 25 years, the market was down 20% or more
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on an entry year basis in nine of those years.
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Now here's an interesting data point.
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When I was running the data, technically a bear market is
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when the market is down 20% or more.
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But often in the market would be down 19% or 19.5% and then
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reverse and go back up. And so it wasn't technically a
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bear market, but I went ahead and included 19% because
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honestly, if your portfolio is down 19.5% or 20%, you basically
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feel the same way about it. So let's turn these abstract
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numbers into some real numbers. Let's say you retired 25 years
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ago in 2000 with $1 in your portfolio.
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That means that over the past 25 years, you would have seen 9
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draw downs where your portfolio have been down by at least
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200. If you had a $2
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portfolio, it's very possible that you would have been down
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$400. And when you're retired and
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you're down by $400 with a $2 portfolio, that's
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scary. And here's the reality.
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In the last 25 years, if you'd retired in 2000, that would have
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happened to you on 9 separate occasions just since you retired
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25 years ago. So these are painful draw downs.
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These are scary, very drawdowns. They're anxiety inducing
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drawdowns. And This is why I can almost
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guarantee you that a market crash or a market drawdown of at
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least 20% or more is coming. Now, I don't know when that
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crash is coming. It could be this year, it could
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be a year from now, it could be 5 years from now.
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But if you just retired today and you're 60 and you're
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decently healthy, you have a 30 to 35 year time horizon ahead of
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you. And it is quite probable that
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you are going to see 8 to 10 painful market corrections where
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the market could be down 20% or more.
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And every one of those is going to seem scary and is going to
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elicit fear, not because you're bad at investing, but because
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you're human. And here's what happens,
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particularly once we enter retirement.
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We panic and we want the bleeding to stop.
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So we sell at exactly the wrong time.
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Now, here's another interesting anecdote.
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Peter Lynch, who's one of the most famous investors of all
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time, He managed Fidelity's Magellan fund from 1977 to 1990.
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Under his management, the fund averaged an astounding 29% a
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year annualized return. But here's a really interesting
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data point that I ran across. According to an article I read,
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the average Magellan Fund investor lost money during
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Lynch's tenure. So how does that happen?
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If you look at the annualized return for the period that Lynch
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ran the fund, if you just look at the annualized for that time
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period, like I said, it's 29% a year.
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Sounds great, but the reality is there are a lot of years where
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he was up by a lot and there were years where he was down by
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a lot, often more than the market.
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So Lynch had some exceptional years.
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And for example, in 1980, he was up by 70%.
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So what happens? Greed kicks in and everyone
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wants to be a part of the fund. That was up by 70%.
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The next year, 1981, he underperformed.
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So these investors who hopped in in 1980, right?
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They are like, we're going to make a lot of money.
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As that fund begins to underperform and begins to dip,
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they're incredibly disappointed and they watch the money they
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put into that fund and begin to dip and to dip and to dip.
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And So what do they do? It's human, but they jump ship
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looking for another market winner.
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They read Morningstar or they read Fortune or whatever Money
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magazine, and they go chasing some other trend.
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They heard that gold is hot, and in doing so, they locked in
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their losses. Had they stayed with the fund
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for another 10 years, they would have had an average annualized
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return of more than 25%. Would have been an incredible
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success story. But what happened is they
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allowed greed to cause them to join the fund, and they allowed
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fear to make them exit at exactly the wrong time.
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Here's another interesting data point.
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There's an organization called Dalbar.
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I don't know if I'm pronouncing it right, it's DALBAR.
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But they do research on the impact of emotions in the
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market, and they found that from 1990 to 2019, the S&P returned
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an average annual return of somewhere around 10%.
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But during that same time period, the average investor had
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an annualized return of only 5%. So the S&P was up by 10, but the
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average investor was only up by 5.
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Even a moderate 6040 portfolio had an annualized return of
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8.7%, but the average investor just had an annualized return
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during that time period of 5%. Why?
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Because people get in the market when it felt hot and exciting.
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It feels good. All your friends are making
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money, so you hop in and then you allow fear and panic to
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drive you out of the market, which causes you to
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underperform. But this is not only an equity
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issue, it's also a problem of bonds.
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We see a similar thing in the bond market.
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Despite an average enter your drop of 3.5% in the bond market,
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bonds have been positive, according to JP Morgan, in 43 of
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the past 48 years, at least when the study was written.
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So almost every year during the past 50 years bonds have been
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positive, but during those that 50 year period there have been a
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lot of draw downs and the average draw down on an inter
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year basis is 3 1/2%. So bonds do go down.
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Now they ultimately tend to be up, but they move around and
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they go up and down just like stocks.
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Now they don't move as much as stocks, but they move.
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And So what do we do? We get ourselves in trouble
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because we chase returns or we say, oh, I'm not going to lose
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any more money in bonds. And we sell out at the wrong
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time. And we try to time the market.
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We either try to stop the bleeding or we try to get in on
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the next rocket ship. So we allow fear to cause us to
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sell at exactly the wrong time, or we allow greed to cause us to
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jump in on a rocket ship like buying NVIDIA or Tesla or
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Palantir or whatever the hot stock of the day is.
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But we get in exactly the wrong time.
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We've watched it go up and up and up, right?
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We watch Bitcoin go up and up and up and we can't stand
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hearing our friends tell us about how much money they've
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made any longer. And so we jump in.
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We buy Bitcoin right before it begins to go down.
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And one of the other mistakes I see investors make all the time
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is it'll say things like this feels like the top stocks have
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made way too many all time highs.
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Maybe we should sell or I'm going to wait for this thing to
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pull back. Then I'm going to get in the
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market back to talk to someone. The other day they had
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$2 a million in cash and they said they've been sitting
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on $1 in cash waiting for a pullback for the last
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three years. I said you've been holding cash
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for three years, right? That's like, what about the
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pullback in 2025? Why did you get in?
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The market was down by 20%. I don't know.
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It didn't feel safe, which is the problem.
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We never know when to get back in.
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So I'm really grateful for a blog post by Ben Carlson.
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I talked about this in another video.
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Over the past 10 years, we've reached nearly 350 new all time
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highs. 2025 had 39 all time highs and it was down by 19%
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into a year, all in the same year.
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In fact, we've experienced a new all time high in nine of the
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past 10 years. But it gets even more
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interesting. New all time highs are a very
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regular occurrence. 7% of all trading day since 1950s have
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made a new all time high. On average.
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That means you get a new all time high about every 14 days.
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Now does that mean you should go all in on NVIDIA or all in the
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S&P or Bitcoin or whatever The thing is at an all time high?
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No. You need a portfolio you can
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hold. You need to diversify because we
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never know what's going to take off at any one time.
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And you need a portfolio that allows you to spend the money
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you need to spend and when you need to spend it without
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creating an income death spiral. OK, I'm going to end it there.
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But just quickly to recap, the point of this video is that in
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the past 25 years, there have been nine periods where the
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market was down by nearly 20%. You have a $2 portfolio.
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That means you were down by 400.
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If you have $1 portfolio, you're down by
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200 times in the past 25 years.
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And every time felt scary. The market is not down by 20%
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unless it feels scary. But every time we're in the
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midst of it. When you're in the fog of a
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market drawdown, our brain begins to reinforce and tell us
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a story, to justify our fear and to tell us why this time is
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going to be different. Hey, thanks for listening.
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If you enjoyed this content, if you do me a favor and just leave
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a review on whatever podcast app you're using, Apple or Google.
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Or. Spotify and also you can find us
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on YouTube. Just search Foundry Financial or
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searching both and then you can find our website at
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foundryfinancial.org. Thanks for listening.