Did You Capture the (Financial) Bull?

How have your investments performed over this historic run?

You may have heard recently that the stock market had its longest run-up – called a bull market – in history. A bull market is defined as a period that starts at the previous bottom (usually a 20% drop) and continues without another drop of 20%. By that definition, the current US bull market has lasted over 3,400 days from the previous bottom in March 2009 through August 2018.

Despite the lengthy run-up, I continue to meet physicians who state they haven’t seen the kinds of gains they read about in the newspapers. So let’s figure out if you’ve captured the bull.

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We’ll take two emergency physicians – one age 35 in 2009 and another age 45 in 2009. I’ll assume both make $300,000 gross annual income in emergency medicine and they both save 20% of their gross income annually. That’s $60,000 of savings annually. Yes, I know that savings rate sounds high to some, but to build wealth over time so you can have a decent retirement lifestyle, saving 20% of your income annually can be a great way to do it. And quite frankly if you’re not near that number on average, you’re saving too little in my opinion. I won’t distinguish between employee and independent contractor status in this example.

I’ll also assume that the younger physician starts with $0 in his retirement account at the beginning of 2009 and has an allocation of 100% stocks. The older physician starts with $500,000 and has an allocation of 60% stocks and 40% bonds. The allocation to stocks is invested in a globally diversified portfolio comprised of 70% in US stocks (S&P 500 Index) and 30% in international stocks (MSCI EAFE Index). Bonds are represented by the Barclays US Aggregate Bond Index.

To make the analysis a bit simpler, I’ll use calendar year returns from 2009 through 2017.

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First let’s see how the various types of indexes performed on their own:

You can see that the US has led the way, although 100%+ returns for international stocks in less than a decade isn’t too shabby either.

Let’s check in on our younger emergency physician who starts with $0 at the beginning of 2009 and invests $60,000 at the beginning of every year. Remember he’s invested 100% in stocks.

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Here’s his experience and the value of his portfolio during the bull:

By the end of 2017 – when he’s 45 years old – he’s got a seven figure portfolio.

What about our older physician who turns 55 by the end of 2017? Remember he had already saved $500,000 at the beginning of 2009 and continued to save 20% of his $300,000 annual salary – though with a lower risk allocation that included 40% in the bond market.

Here’s how he stacks up:

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While he may not necessarily be able to completely retire considering that he would have to sustain his portfolio for possibly 40 years, he may be thinking about cutting down his shifts so he can do other things he can do now that he can’t later in retirement.

Some important points to note about this analysis:

1. You can’t invest directly in an index and this analysis doesn’t factor in transaction costs and expenses.
2. Your actual results will vary for many factors including: how much and when you saved new money into the portfolio, withdrawals from the portfolio if any, addition or exclusion of other investment classes, changes in your stock/bond allocation, how often you rebalanced your portfolio, and other factors.

Conclusions

Despite the limitations of this analysis, it should still give you a general idea of what’s happened since the last significant bear market ended back in 2009.

Here’s what you should do next:

1. Pull out your statements from 2009 and every year thereafter for all of your accounts (including your spouse’s accounts) and record the balances.
2. Look back and see what you’ve saved annually into each account.

Did you capture the bull or did the bull trample over you?