The price chart above has THREE TAKEAWAYS:
1. How long did it take for the buy and hold investor to breakeven? Answer: six long, scary years of not knowing when they’d get back to breakeven.
Note, they didn’t make any money during this six years. This is what it took just to get to breakeven. And the above price chart does NOT even show the damage of inflation. If it did, you’d see the breakeven point of the S&P500 Index taking 14 years to breakeven.
2. Why did the blue line go higher during the Dotcom Crash? It went higher because Question #1 not only answers whether to be in or out of the stock market but also tells the investor what asset to be in while out of the stock market. In this case. The asset was “cash” making 5% a year.
3. How much did the blue line grow during the S&P 500’s “breakeven” time period? The “blue line” was up 50%. So that same $100,000 that most people were happy to just get back if they had their money in the S&P500, the “blue line” investor was already up 50% or $150,000.