I was watching Season 5 of the Peaky Blinders on Netflix two days ago. Episode 1 focused on the aftermath of the 1929 Wall Street Crash.
The show regularly spoke about people “losing” money and being “wiped out”. Similar popular entertainment shows have used similar language.
You may say it is just entertainment and most people know that. However, I get sent countless messages and emails from readers who have read articles online, or watched various shows, and have become afraid of these once in a generation crashes.
How accurate are these kinds of depictions of real life events? Facts seldom mentioned are:
- A loss and a decline isn’t the same thing. You only lose money if you panic sell after a crash or decline
- Very few people were so unlucky to buy 1 day before the crash and then sell at the worst possible moment
- A decline or crash gives you the opportunity to buy at cheaper prices. Somebody who invested $500 every month from 1925 until 1940 would have made a good profit, due to the lower prices from 1929 until 1935 in particular.
- Those that panic sold only had themselves to blame.
- Bonds outperformed stocks in the 1930s, giving people a rebalancing opportunity
- There was deflation during the 1930s. So the real-terms losses weren’t that bad. Below is the average real-term results for the 1930s…….stocks averaged -0.9% per year in the 30s adjusted for inflation and bonds +4% per year.
- The 2000s (2000-2010) were actually worse than the 1930s if you adjust for inflation rather than looking at nominal terms.
- If you invest for decades, one bad decade won’t affect your averages very much, especially if you have a mixed portfolio of bonds and stocks.
Popular culture shocks are great to relax after a long day at work. Just make sure they don’t subconsciously affect your mindset about investing.