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Happy Anniversary, Crash!

No, I’m not talking about Crash Davis, the professional baseball player who inspired the role of the main character (played by Kevin Costner) in the movie Bull Durham.  Although, next year will mark the 25th anniversary of that classic movie.

I’m referring to the Stock Market Crash of 1987, which happened twenty-five years ago today.  On October 19, 1987, also known as Black Monday, the Dow Jones Industrial Average plummeted an astonishing 508 points (or 22.6%) which was (and still is) the single-worst one-day percentage decline of all time.  That is equivalent to a drop of over 3,000 points on the Dow today!  The panic that ensued was remarkable and left most Americans wondering if it was the beginning of another Great Depression.

While the days and weeks following Black Monday were daunting, we have learned some very important historical lessons from that event (and other “similar” events since then).  The single most important lesson is that no matter how unfathomable, major declines in stock prices have always been temporary.  The S&P 500 Index closed on Black Monday at 225.  On the twenty-fifth anniversary of that event it stands at about 1,450, which is close to six and a half times higher than it was back then.

So, the only folks that “lost” anything on that day were the ones who sold.  If one simply held on to what they had and if it was invested in the S&P 500, it would be up about six and a half times from those levels (price only).  The message here is that it’s important to realize the difference between “loss” and “volatility”.  Volatility sometimes seems frightening, but we need to remember that it’s only temporary.  Loss is the permanent decrease in capital that follows a sale.

Your Wealth Management team at Woodward Financial Advisors in Chapel Hill, NC is here to discuss this historical event (or any others) with you if you wish.  As you know, our investment philosophy is grounded in the fundamental principles of proper asset allocation, low cost implementation, and disciplined monitoring.  We believe this approach leads to better outcomes and more sleep at night when the next volatile event comes our way.

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