Specialist
Sean is retiring today after 40 years of service with the same employer. When he joined in 1980, the country wasn’t in good shape and his employer struggled to keep going, never mind pay into a pension scheme for Sean.
But as things improved, so did company profits, so his employer gave Sean €100,000 to invest in his pension.
Black Monday 1987
Sean made his first pension investment in the stock market just before Black Monday in October 1987. He instantly saw his €100,000 fall in value to €71,380, a fall of -28.62%. It wouldn’t be until the end of December 1988 before his money was worth €100,000 again.
Russian Default 1998
Sean’s employer kept on putting a few quid away for him out of profits each year and saved up another €100,000 for him to put into his pension. Sean made his second investment in the stock market in August 1998, just before the Russian government devalues the ruble and defaulted on their debt. Sean saw his €100,000 fall in value to €79,440, a fall of -20.56%. Luckily for Sean, his money recovered pretty quickly and by January 1999, he had €100,000 again.
Dot Com Bubble (2000) and September 11 (2001)
Business was going well so it didn’t take long for Sean’s employer to give him another €100,000 for his pension. Sean made his third investment in September 2000, just before the tech bubble burst and saw a stock market collapse. Before he knew it, the September 11 attacks occurred, causing stock prices to fall further. Over the next 2.5 years, Sean saw his €100,000 fall in value to €44,810. It would be another 13 years before this money was back to being worth at €100,000.
Credit Crunch 2007
The economy continued to recover and the world was caught up in a lending frenzy that saw consumer spending soar. Company profits soar, so Sean’s employer gave him €100,000 to invest. He went back into the stock market in June 2007, just as the credit crunch recession hit. He saw another massive fall in value, with his €100,000 falling to €49,040, a -55.96% fall in value. It would be another 4 years before his money would be worth €100,000 again.
Covid 19 2020
After 40 years service, Sean is getting ready for retirement, so his employer gives him a final €100,000 for his pension. He invests just as Covid 19 shuts down the global economy. He sees his €100,000 fall in value to €66,270, a fall of 33.73% in a month. At his retirement today, it is still worth less than he put in.
What is Sean’s pension worth?
Despite his bad luck with market timing, Sean is a believer in capital markets and long term growth so he didn’t alter from his investment in the MSCI World Index. So how has his money done?
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Black Monday Investment is worth €995,320
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Russian Default Investment is worth €341,710
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Dot Com & September 11 Investment is worth €204,910
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Credit Crunch Investment is worth €239,480
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Covid 19 Investment is worth €91,020
From a total investment of €500,000, Sean is retiring with a pot of €1,872,440.
Market timing can see you getting a big boost from your investment but it is luck and can’t be used as a reliable investment strategy. Investing in quality companies and giving your money the time to grow will see you making money, even if you invest at the worst possible times.
If you have any questions, please contact me at steven@bluewaterfp.ie