Five minutes a week that makes you smarter and calmer about your own money — plus a look at what I’m actually doing with mine…
The bull market is four years old
Four years ago this week, nobody wanted to buy shares.
Inflation was 10%. The Bank of England was buying gilts in an emergency to stop pension funds going under. The Chancellor was sacked that Friday, the Prime Minister went the week after, and every paper was calling a recession. On 12 October 2022 the S&P 500 closed at 3,577, its lowest point of that bear market.
On Monday it closed at 7,807. Up 118% in four years, or about 21% a year.
Two things about that. First, nobody managed it. A plain S&P 500 tracker got the whole lot, and a fund manager charging 1% a year would have taken a chunk of it for the privilege of doing the same thing.
Second, nobody timed it. Four years ago was the best day to buy in this whole run, and it was the day that felt most like the end of the world.
The best moment to buy never looks like one.
Before you check your own account and feel short-changed: if you hold a tracker in pounds, you haven’t quite doubled. More on why below.
WHERE WE STAND
The S&P 500 closed at 7,807 on Monday, a whisker below last week’s record. The FTSE 100 closed at 10,656, up 1% on the day as the banks rallied and oil climbed back above $100.
THE MARKET THIS WEEK
What happened
Houthi missiles hit Riyadh airport three days running, killing fourteen people, and Iran said it struck three supertankers in the Strait of Hormuz. Crude oil went back above $106 a barrel.
The minutes of the Federal Reserve’s September meeting showed most of its policymakers expect another rate rise by the end of the year, but not at this month’s meeting.
The AI shares that carried last week’s record took a breather. Memory-chip makers fell hardest, and technology was the worst-performing sector on Monday.
What I think it means
What ends a bull market is usually the cost of money, and the cost of money is going up.
America’s ten-year borrowing rate is 5.2%, the highest in years, and if the government pays that, for zero risk, shares have to keep earning more to justify their price. For what it’s worth, bull markets that reach their fourth birthday have, over the past fifty years, always reached their fifth.
For your shares, nothing changes. The people who sold at the bottom four years ago locked in the loss. The people who kept buying got the 118%. Keep buying, and don’t try to call the top.
I’m not doing anything new this week. The money from my BTEK sale is sitting in VUAG, my S&P 500 tracker, which is where it belongs until the next cheap sector turns up. My portfolio is here.
What’s coming up
US inflation data lands tomorrow, and a hot number puts the Fed’s next interest rate rise back on the table. The Fed interest rate meeting is on 27–28 October, the UK Budget on 28 October, and the US midterm election on 3 November.
ONE THING WORTH UNDERSTANDING
Why your tracker didn’t double
The S&P 500 is priced in dollars. You hold it in pounds. So your return is the index’s return, plus or minus what the pound did against the dollar.
On 12 October 2022 a pound bought $1.11. Today it buys about $1.32. The pound got stronger, so every dollar of gain is worth fewer pounds when it comes home. The same tracker that is up 118% in dollars is up about 83% in pounds, call it 90% once you add the dividends.
Still a very good four years, and still with nobody taking a cut. It cuts both ways: when the pound falls, your American shares are worth more in pounds. Over decades it mostly washes out.
WORTH YOUR TIME
Book of the Week: The Millionaire Next Door, by Thomas Stanley and William Danko. Two academics went looking for American millionaires and found most of them in ordinary houses, driving old cars, with money invested and left alone for decades. The four years above are what that looks like from the inside. Nobody in the book picked the bottom either. Buy it on Amazon here.
NEW HERE?
If you joined this month: most of what we do rests on one idea: a cheap S&P 500 tracker, bought regularly and left alone, will perform better than most financial advisers. The last four years are the argument for it. To learn more, start here.
BEFORE YOU GO
Reply to this email and tell me: were you invested in October 2022? If you weren’t, what stopped you? One line is plenty.
See you next week.
Tim
P.S. If you’ve been reading all this and are still feeling stuck, I have something coming soon to help you…
I am not a financial adviser. Nothing here is personal financial advice. Please do your own research before making any investment decisions.