Today, I’m sharing FIVE (5) surprising statistics about the economy, markets, and retirement.
For example, one stat highlights a “stock market indicator” that has a 100% success rate 😳
Another emphasizes a growing insurance risk that everyone needs to protect against.
Along with being entertaining, these stats bring important investing and planning topics to the surface.
They also serve as important reminders.
If you’re ready to have some fun learning about the history of the markets and little-known facts about investing, this episode is for you.
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+ Episode Resources
- Stay Wealthy Episodes Referenced:
- Volatility and International Stocks:
- Auto Insurance Stats:
- Tax Stats:
- Cathie Wood:
+ Episode Transcript
5 Surprising Facts About Investing That You’ve (Probably) Never Heard
Taylor Schulte: Welcome to the Stay Wealthy podcast, I’m your host Taylor Schulte, and today I’m sharing 5 surprising (and informative) facts about the economy, markets, and retirement planning.
Long-time listeners might remember that I’ve published “surprising facts” episodes the last two years, which always prove to be a well-received much-needed break from the daily news cycles and complexities of retirement planning often discussed here on the show.
If you missed the fun fact episodes I’ve done in the past, I’ll provide links to them in today’s show notes. But there are two favorite stats from last year’s episode that I find myself continuing to revisit and share with people.
The first was a statistic I shared about investing cash, which has become an increasingly popular topic in recent years with interest rates at levels we haven’t seen since 2007. The stat that I shared was that from June of 1933 to June of 2001, a 68-year time period, one-month Treasury bills (i.e., cash), produced negative real returns. For 68 years, cash produced a negative real return.
As a reminder, the real return of an investment is the rate of return after accounting for inflation. For example, if your nominal rate of return is 3% and inflation is 4%, you have a negative 1% real return. Inflation ate away at all of your investment returns and a little bit more. Real returns are important to monitor because the reason most people invest their hard-earned money in the global markets is to preserve their purchasing power and outpace inflation for long periods of time, especially in retirement when traditional income sources shut off. But, during this 68 year time period, almost 7 decades, inflation outperformed cash.
As Michael Batnick has wisely stated in some of his writings:
“What’s safe in the short run can be risky in the long run.”
The other stat from the last episode that has stuck with me for years is about long-term care. As you may be able to attest to, most retirement savers at some point in their life, have been told or have read somewhere that 70% of people turning 65 today will need some form of long-term care services in their lifetime.
In addition, about 25% of those people who will need long term care will it for two years or more. While these statistics are true, what often isn’t shared with retirees is the actual damage long term care might do to their wallets – how much a long term care event will cost them.
The stat that I shared last year is that only about 13% of people who are age 65 today will spend over $150,000 in lifetime, out-of-pocket long-term care expenses. Even crazier, roughly 63% of people age 65 today will have zero out-of-pocket long-term care expenses during their lifetime. The other 24% of people will fall somewhere in between.
I’m resurfacing this statistic again to point out that when you pull back the curtain, a relatively small percentage of the population is truly at risk for an extreme catastrophic long-term care event.
Of course, that doesn’t mean you should roll the dice and assume that because you’re in good health you should ignore this part of your retirement plan. Quite the opposite. Everyone needs to have a plan for a potential long-term care event. But not everyone needs to be spooked into buying expensive long term care insurance policies to protect against long term care expenses destroying their retirement plan.
Ok, enough about last year’s episode, let’s jump in to today’s 5 surprising facts about investing and retirement planning. To access the articles and research referenced in today’s episode, just head over to youstaywealthy.com/223.
The first statistic to share with you today was sparked by the recent volatility in the markets and, more specifically, the medias response to the volatility. As some listeners might know (and I hope it’s a very small % of listeners!), for the last 14 years, CNBC has run what they call a “Markets in Turmoil: Special Report” when the stock market experiences substantial losses in a short period of time or extreme bouts of volatility.
In other words, when markets get choppy and investors become fearful about the state of the economy and the future of their investment portfolios, CNBC leans in and puts a spotlight on the uncertainty and fear. While these “markets in turmoil” special reports are reportedly trying to “bring investors the latest information” and “give them answers about what’s next for their money,” they typically create more fear and worry and, in turn, sometimes influence investors to make irrational changes to their investments.
But, as always, investors would have been wise to ignore talking heads or, at the very least, refrain from making dramatic changes to their investments as a result of what they watch or read. For one, because the media doesn’t have any knowledge of your financial situation and investment goals. But also because of CNBC’s track record. This is truly one of the craziest stats I’ve seen in recent years.
So, since 2010, CNBC has ran their “markets in turmoil” special 106 times, or about 7.5 times per year, on average. And the average one-year forward return following all 106 runs of this turmoil special is a positive 40% return. I’ll say that again…the average one-year forward return following every markets in turmoil special report since 2010 is a positive 40% return. Perhaps even crazier is that 100% of all one-year forward returns following the markets in turmoil special were positive.
In other words, if you invested in the U.S. stock market via the S&P 500 on any one of these 106 days when the markets in turmoil special aired, you would have had a positive return one year later. The lowest one-year return was after the special ran on February 5th, 2018, returning only 4% in the 12 months following the special report.
And the highest one-year return was after the COVID crash edition of this special ran on March 23, 2020, returning 77%. A 77% rate of return in 12 months for investors who ignored the noise and invested their money in the U.S. stock market on what ended up being exactly one day before the market officially bottomed.
Two quick things regarding this statistic before we move on.
First, I don’t want to ignore how incredibly challenging it is to go against the grain, ignore the fear and uncertainty, ignore major geopolitical events, and invest your hard-earned money while in the thick of a market meltdown.
In the heart of these major economic events and downturns, it often feels like there is no end in sight, that the markets could continue going down forever, that everything could go to zero. And while some investors have the risk tolerance and conviction and financial stability to buy when everyone is selling, it shouldn’t be expected of every investor to be able to do the same.
Doing nothing is hard enough, and thankfully, it’s been proven that that doing nothing and staying the course and ignoring the noise is more than sufficient for inventors to experience long-term investment success.
Second, Charlie Bilello, the market strategist who deserves all of the credit for this Markets in Turmoil statistic, pointed out that these CNBC specials started in 2010, and therefore this 14 year time frame is limited to what he calls a “buy-the-dip bull market run” where corrections have been short lived.
He acknowledges that when the next longer-term bear market comes, there will surely be losses one-year after these specials run – that we can’t expect this markets in turmoil indicator to have a perfect batting average forever. But he also reminds us that, whether you are a day trader hoping for a short-term bounce in the markets or an investor looking to add long-term exposure, there’s been no better contrarian signal.
That, you should always prefer a “markets in turmoil” special report to regular programming because panic, historically, has created opportunity for investors.
Ok, the second statistic to share with you today keeps us in the investing realm, and specifically addresses one of my favorite topics, international investing. I’ve dedicated an entire episode to international investing, debunking many common misconceptions, and I’ll provide a link to it in today’s show notes if you’re interested in listening or re-listening to it.
But the following statistic is a new one that I hadn’t come across before and it was recently shared by friend and fellow financial planner, Travis Gatzemeier. Travis shared a historical chart from Morningstar highlighting the time periods when international stocks outperform US stocks.
The chart shows that from 1974-2023, U.S. stocks have outperformed international stocks 59% of years. In other words, in the majority of years over the last 5 decades, US stocks have had higher returns than international stocks. However, the chart goes on to show that when US stock returns were less than 6%, international stocks outperformed 96% of the time. And when US stock returns were less than 4%, international stocks outperformed 100% of the time.
As Travis pointed out, the main advantage of holding international stocks in your portfolio is not boost long-term returns or to try and outsmart the markets – it’s to safeguard against a single country underperforming for long periods of time.
I said this a little differently in my episode on international stocks when I reminded listeners that investment returns are lumpy. That, yes, US stocks have had an average annual return of 10% throughout history but that US stocks rarely deliver 10% returns. In the fact, since 1927, US stocks have had more years with returns between 15-20% than any other range measured.
Sometimes US stocks go up a lot, sometimes they go down a lot, and sometimes they don’t go anywhere. The same can be said for just about every other asset class, including international stocks. Contrary to what we might have assumed, investments rarely deliver average returns year over year.
And while it’s easy to look back and see that just simply owning U.S. stocks for five decades would have produced the best outcome, it’s highly unlikely that most investors would have been able to stay committed to their US stock portfolio during all of those different time periods of underperformance and disappointing returns – it would have been an emotional rollercoaster.
If, instead, investors had a healthy allocation to international stocks (and other diversifying asset classes) over the last 50 years, it would have likely been easier to stay the course and avoid panicking and making costly changes to their investments when US stocks were suffering. Also, for those in retirement, owning diversified asset classes allow you to sustain income and take withdrawals from investments that are doing well and refrain from having to sell others at a loss.
Ok, switching gears here for our third statistic and venturing into the world of insurance, specifically, auto insurance. According to CCC Intelligent Solutions, an auto insurance technology company, a record 14% of drivers do not have any car insurance. Completely uninsured, driving around in a 4,000 pound piece of metal at 70 mph.
Even crazier is that this number is up nearly 30% since 2019. And while the number of uninsured drivers on its own is concerning, it doesn’t end there. An additional 16% of drivers on the road do not carry enough insurance to cover damages and injuries in accidents they cause. As CarDealershipGuy shared on Twitter, this essentially means that 30% of drivers on the road are artificially inflating our insurance premiums because the insurance companies have to factor in the additional risks caused by people driving without proper coverage.
And this, in addition to catastrophic weather events and an increase in auto repair costs in recent years, is one of the major reasons why auto insurance rates are up nearly 25% year-to-year. In fact, in 2024, the average car insurance rate has already risen 15% to just over $2,300 per year, and it’s estimated that premiums will continue to increase through the rest of the year.
In case you’re wondering, according to Insurify, Maryland has the highest premiums of any state, where the full cost of coverage can be as high as $3,800/year. On the other end of the spectrum, New Hampshire is the cheapest state, where drivers are paying an average of $1,000 per year, a difference of almost $3,000.
So, what might we do in response to this data? Well, for one, plan accordingly so you’re not caught off guard if premiums continue to rise. But, more than that, now would be a good time to confirm that you have uninsured/underinsured motorist coverage included in your auto policy.
That way, if one of these drivers who isn’t carrying the proper insurance hits you, you’re covered by your own policy and aren’t forced to pay out of pocket. Some states require this coverage but the vast majority in the U.S. do not.
So, check your auto policy, and if you want to learn more about this coverage and also how to shop for cheaper auto insurance, I’ll provide two good resources in today’s show notes which can again be found by going to youstaywealthy.com/223.
Ok, the fourth statistic to share with you is a handful of fun facts about a single topic, one of our favorite topics here on the show, taxes. More specifically, these facts highlight some of the more unusual aspects and historical quirks about the complexity of the U.S. tax system.
Since there isn’t much we can do in response to this complex system other than find the humor in it, I’m going to run through these rapid-fire style:
1. To start, the U.S. federal tax code continues to get longer and longer and is now nearly 4 million words long. To put that into perspective, the U.S. federal tax code is roughly 4 times longer than all of Shakespeare’s work combined which is an estimated 900,000 words. Funny enough, while Form 1040 is supposed to be one of the simpler tax forms, and is the form that most Americans use to file their taxes, the instructions for this form alone is over 100 pages long.
2. Speaking of long, it’s estimated that Americans spend over 6 billion hours per year complying with federal tax requirements – equivalent to nearly 10,000 lifetimes.
3. Next, I know we all feel like taxes are high now, but in 1944, the highest U.S. tax rate reached 94% for incomes over $200,000.
4. And while tax rates aren’t that high today, it’s no secret that many people still try to find loopholes in the tax system to win one over on the IRS. One example of these loopholes being exposed was when the IRS began requiring Social Security numbers for dependents in 1987.
As a result, roughly 7 million children suddenly vanished from tax returns. In case you’re wondering, depending on their relationship to the retiree and the qualifying situation, dependents may receive social security payments between 50% and 100% of the qualified retiree’s benefits. In other words, claiming a dependent on your tax return can lead to more money in your family’s pocket.
5. Now, while some people intentionally try to skirt around the rules to save money on taxes, many of us just simply make honest mistakes. Again, with a federal tax code that’s over 4 million words long, it shouldn’t be a surprise that mistakes get made. In fact, even the experts make mistakes. According to a study done by Money Magazine, when 50 tax professionals were asked to complete the same tax return for a single family, they came up with nearly 50 different answers.
6. However, in addition to the small sample size of 50 accountants, the different answers may be a result of these professionals completing a paper tax return in the study that was done. Because, according to Turbo Tax, paper returns are 41 times more likely to contain errors than electronic returns.
7. And finally, this last one is for our listeners up north. In Canada, makers of children’s breakfast cereal receive a tax break if their cereals contain free toys. However, and I know this might sound unreasonable to you, but this exemption is limited to toys that are not “beer, liquor, or wine.”
It’s likely no surprise that 72% of Americans surveyed believe the federal tax code is too complex. Since we don’t have any control over simplifying it, all we can do is find the humor in the complexity and do our best to pay our fair share of taxes without leaving the IRS a tip along the way.
Ok, the final statistic to share with you today serves as a good reminder to be cautious about investing in things that sound too good to be true. Cathie Wood, the wildly popular fund manager at Ark Invest who has created a cult-like following has destroyed an estimated 14 billion in wealth over the past decade.
To bring some of our listeners up to speed, American investor Cathie Wood made a career out of betting on the future. Most recently, in 2014, she launched the Ark Innovation ETF, a publicly traded fund available to anyone, and attracted nearly 28 billion in assets 6 short years.
In the early years, investor money was pouring into her fund at the same pace as industry giants like Vanguard and Blackrock. Everyone, from mom-and-pop investors to institutions, wanted in on the story Cathy was selling – that investing in things like Artificial Intelligence, self-driving cars, the metaverse, rockets, and precision therapies (i.e., disruptive technology-enabled innovation) is the key to high-investment returns.
And for a while, her bets were paying off. From October of 2014 to February of 2021, the Ark Innovation ETF was up approximately 740%, outperforming the S&P 500 by over 600%. However, since the peak in February of 21, the fund is down over 70%, significantly underperforming plan vanilla stocks and bonds. While I don’t have the data to prove it, sadly, most mom-and-pop investors likely jumped in near the top when Cathie was making the front page of the news and on television every day.
As I’ve shared before, typically when retail investors hear about a hyper-successful investment, it’s too late.
But let’s say you weren’t too late. Let’s say you stumbled across the Ark Innovation ETF when it launch in October of 2014 and you invested $10,000 in it. If you somehow stayed on this roller coaster for the last 10 years, your investment would be worth just over $20,000.
On the other hand, if you took the boring route and instead invested $10,000 in a low-cost S&P 500 index fund in October of 2014, your investment would be worth almost $32,000. In percentage terms, the S&P 500 has outperformed Ark by just over 90% since October of 2014. And it did so with much less risk and volatility and sleepless nights.
Ark Invest, the company behind the Ark Innovation fund that once managed nearly 30 billion dollars at its peak, was recently been named as the #1 wealth-destroying fund family over the past 10 years by Morningstar. The Ark Innovation fund now only has $5 billion of assets under management and Cathie isn’t giving up yet.
Just recently, she was quoted on CNBC saying,
“Given our expectations for growth in these new technologies, I think we’re going to see some spectacular returns over the next five years.”
She may be right. But what if she’s not. Or…hear me out…what if there is a more prudent approach to investing. An approach that doesn’t require you to make highly concentrated bets on some of the riskiest companies in the world.
I hope you enjoyed today’s episode. If you want to dive deeper into any of the statistics shared today, just head over to youstaywealthy.com/223 where I’m providing links to all of the articles and research referenced today.
And if you ever come across a crazy statistic that might be fitting for the next fun fact episode, send it over to me at podcast@youstaywealthy.com.
Thank you, as always, for listening and I will see you back here next week.
Episode Disclaimer: This podcast is for informational and entertainment purposes only and should not be relied upon as a basis for investment decisions. This podcast is not engaged in rendering legal, financial, or other professional services.
