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Back to the Future!

As you have probably already seen on social media, today is Back to the Future Day. For those not familiar with the 1989 classic film, today, October 21st, 2015 was the "future" date that Marty McFly visited in Back to the Future II.

It is somewhat funny to watch that movie and see how much the world has changed since 1985. While we may not have hover boards or flying cars, and while the Mets are currently doing a good job of making sure the Cubs don't win the World Series, there is much that the movie got right. Most importantly, the movie accurately predicted the technology would represent the largest economic revolution of the 21st century.

As 80s kids like yours truly celebrate Back to the Future Day, I thought it would be a good time to look at how the markets have changed since the day that Marty McFly stepped into the Delorean.  

On October 21st, 1985, the stock market opened at 1,367.05, a far cry from the 17,255.93 that it opened at this morning. How much growth is that? Well, think of it this way. What if Doc Brown had $50,000 in his IRA on this date 30 years ago, and just let it ride until today? First, he would have survived Black Monday in 1987 when stock markets around the world crashed, including the U.S. markets, which shed 22.61% of their value in one day. He would have survived the dot-com bubble from 1999-2001, when companies like saw their stock tumble from $107 per share to $7 per share (today, their stock opened at $558.23 per share), which other companies failed completely. He also would have made it through the 2002 economic downturn, which saw a 27% loss in the Dow Jones Industrial Average and a 44% loss in the NASDAQ. Lastly, he would have made it through the Great Recession in 2007-2008, the largest economic downturn since the Great Depression, with a market loss of nearly 40%.

That is an awfully large amount of turbulence, even for someone used to traveling at 88mph. What would the end result be? Even after all of those down turns, the value of his portfolio this morning would be more than $631,000, a 1206% increase over what he had in 1985.

What does this teach us? I think there are two lessons to be learned. The first, and most important, is that there is no fuel for your portfolio more powerful than time. I have often been heard telling clients that saving for retirement in your 20s and 30s is the most important time, because you will never be 30-40 years away from retirement again. When you have time to withstand the waves, you have a much greater chance of coming out on top. Think about this...if Doc had pulled his money out after the 1987 crash and then re-invested just one day later, the value of his portfolio today would be nearly $150,000 lower than it would have been had he let his money ride out the crash.

The second lesson, which I believe is of particular importance for Generation X and Millennial investors is that time value of investing in the stock market. Because of the explosion of social media, the 24-hour news cycle, and three economic downturns in what feels like a short amount of time, younger investors tend to be more conservative than their parents before them. We are watching our parents try to recover from the money they lost as a result of the Great Recession, and the decisions they made then, which are playing out negatively today.

That said, younger investors invest too conservatively at their own peril.   Interest-rate-based products are not what they used to be. In 1985, the average interest rate for a 5-year CD was 9.99% annually, meaning that even safe, conservative money was growing at a rate that challenged the average annual stock market returns over time. Today, that same 5-year CD is 2.45% annually, and that is at the HIGH end. Safe, conservative investments, in today's low-interest rate environment, do not provide the type of return that allows your money to grow over time. Top that with the negative impact that rising interest rates have on bonds and bond funds, and you have an economic landscape that requires a young investor to invest in equities if they want to have hope of growing their retirement wealth in a reasonable time frame.  

Tomorrow, we will wake up with the entire Back to the Future trilogy having happened in the past. While parts of the movie were accurately predicted, and others were not, there is one thing the movie definitely got right--the world is a drastically different place today than it was 30 years ago, the stock market included.

Happy Back to the Future Day!


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 Securities offered through American Portfolios Financial Services, Inc. Member FINRA/SIPC (FINRA/SIPC). American Portfolios Financial Services, Inc. and American Portfolios Advisors, Inc. are not affiliated with any other named business entities mentioned.

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