Should my husband still keep putting money in his 401K?

[progree]

9. But what if the S&P 500 plunges 30% down from its all time high? Wouldn't that pretty much ruin the supposed great long

Last edited Tue Apr 8, 2025, 08:19 AM - Edit history (3)

term record of equities?

The S&P 500 closed Monday April 7 at 5062 -- down 17.6% from its Feb 19 all time high value of 6144 -- so we're more than half way down to the 30% plunge.

Let's see what the situation would be if the S&P 500 closes tomorrow, 4/8/25, at 4301, 30% down from its all time high. What would that do to the S&P 500 long term record? Turn it to an at-best ho-hum plain vanilla return that definitely isn't worth the risk and anxiety?

Source of the year-end values in the upper table:
    http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html

What a lump sum $100 investment in the S&P 500 at the end of 1927 would grow to, including reinvested dividends



Then over the last 10.27 years, the S&P 500 with dividends reinvested would still have increased 2.477 fold (a 9.23% annualized rate of return)

And over the last 20.27 years, it would still have increased 5.157 fold (a 8.43% annualized rate of return)

And over the last 30.27 years, it would still have increased 15.943 fold (a 9.58% annualized rate of return)

and so on.

Technical Note - The reason for figuring numbers over the last 10.27 years, the last 20.27 years, etc., rather than the last 10 years, last 20 years, etc. like a normal human would, is because it would be a lot more work; every time I updated this table I would have to look up the S&P 500 adjusted value at 10 years ago, 20 years ago, etc. for a total of 7 such values and then plug them into the speadsheet (Adjusted means taking into account reinvested dividends). More on this at
    https://www.democraticunderground.com/1116100100#post2

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The plunges table - S&P 500 bear market crashes (since 1929, 13 bear markets) with peak-to-trough index drops, with 1-year, 3-year, and 5-year post trough total returns S&P 500 bear markets are when the S&P 500 index closes down 20% or more below a recent high.

"Historically, bear markets have created strong buying opportunities as the S&P was significantly higher 1-, 3-, and 5- years after the trough."

(The 3 worst post-WWII plunges: it has Jan'73-Oct'74 as 48.2%, 3'00-10'02 as 49%, and 10'07-3'09 as 56.8%
https://winthropwealth.com/wp-content/uploads/2023/01/SP-500-Bear-Markets-CQ.pdf

As scary as these are, the important thing to note is that these pullbacks ARE TEMPORARY. It sometimes may take a few years, but the S&P 500 has ALWAYS recovered and gone on to new all-time highs. The table at the top of the post include the entire periods -- with all the corrections and bear markets that occurred. I did not cherry pick just the good parts.

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Market Correction: What Does It Mean?, Schwab, 3/14/25
https://www.schwab.com/learn/story/market-correction-what-does-it-mean
S&P 500 corrections occur when the S&P 500 index closes down 10% or more below a recent high. Bear markets are when the S&P 500 index closes down 20% or more below a recent high

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Corrections occur about every 2 years, on average. Bear markets occur about every 7 years, on average.

In the face of inflation and withdrawals, a balanced portfolio -- with a large percentage equity allocation (but not 100%) for a retiree -- lasts longer and has much less chance of running out of money in say 30 years than does a "safe" all fixed income portfolio (bonds, CDs, money markets etc.). This has been shown by innumerable simulations.

Re: withdrawals: a common model is assuming a retiree withdraws 4% of their portfolio in the first year of retirement, and increases the dollar amounts of the withdrawals in subsequent years by the rate of inflation. That "4%" is a common base assumption but simulations have been done at many different levels of withdrawal rates.