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These are the user uploaded subtitles that are being translated: 1 00:00:00,480 --> 00:00:05,610 OK as we've seen over time stocks can give us a pretty good return maybe a great return especially compared 2 00:00:05,610 --> 00:00:11,070 to inflation special over time and especially the use compounding and continue to add and continue to 3 00:00:11,070 --> 00:00:15,380 buy and let that money grow and compound over many years it was actually Albert Einstein who said that 4 00:00:15,390 --> 00:00:20,400 compounding was the greatest discovery or the greatest phenomenon in the universe which is interesting 5 00:00:20,400 --> 00:00:22,970 he's the equals MC squared guy of course. 6 00:00:23,070 --> 00:00:26,710 And yet he recognized the benefits and the power of compounding. 7 00:00:26,850 --> 00:00:28,640 But stocks can go down too. 8 00:00:28,650 --> 00:00:30,540 And that's the risky part about it and that's. 9 00:00:30,600 --> 00:00:31,760 So we're going to take a look here. 10 00:00:31,840 --> 00:00:34,320 What's the worst case a worst case scenario. 11 00:00:34,380 --> 00:00:39,740 And also what history tell us is the worst case scenario was the Great Depression right. 12 00:00:39,780 --> 00:00:44,460 Many many years ago and we actually have things in place now from government and ways they get involved 13 00:00:44,460 --> 00:00:49,260 with monetary policy adjusting interest rates up and down and things to try to prevent another Great 14 00:00:49,260 --> 00:00:50,010 Depression. 15 00:00:50,130 --> 00:00:53,040 But let's say that's the worst case scenario and it happened again. 16 00:00:53,370 --> 00:00:58,520 How can we how can we survive that can we survive that and what actually happened back in the past. 17 00:00:58,650 --> 00:01:05,850 Worst case scenario was was the Great Depression and the big stock market crash had heard of the stock 18 00:01:05,850 --> 00:01:06,530 market crash. 19 00:01:06,540 --> 00:01:08,100 We're going to look at that. 20 00:01:08,150 --> 00:01:12,960 It's known as Black Monday and Black Tuesday and they weren't black because the numbers went up. 21 00:01:12,960 --> 00:01:18,210 They should have been called red and red Tuesday because the numbers went down way down the stock market 22 00:01:18,210 --> 00:01:20,250 crash went way down. 23 00:01:20,250 --> 00:01:22,650 Worst of all time and it was bad really bad. 24 00:01:22,650 --> 00:01:28,410 How bad was it while on on Monday the stocks went down unexpectedly down 12 points with twelve point 25 00:01:28,410 --> 00:01:31,540 eight percent you know almost 13 percent in one day. 26 00:01:31,620 --> 00:01:38,580 The entire market one day boom down 13 percent the next day down eleven point seven percent two days 27 00:01:38,580 --> 00:01:41,790 in a row down eleven point seven percent and then continued. 28 00:01:41,790 --> 00:01:49,140 So within two days all of a sudden 23 24 percent of returns of investments were gone. 29 00:01:49,140 --> 00:01:57,290 Think of that a quarter everybody everybody's stock market oil gone 0 0 but gone 25 percent in two days. 30 00:01:57,300 --> 00:01:59,290 And how long that might take to make up for it. 31 00:01:59,370 --> 00:02:03,180 And we're going to do some interesting analysis here going to do a demonstration where you can see well 32 00:02:03,180 --> 00:02:08,560 what was it like and how did the returns bounce back and how did people survive these worst case scenarios. 33 00:02:08,700 --> 00:02:13,080 And did they and they actually did quite well so we'll look at a couple of time periods of the Great 34 00:02:13,080 --> 00:02:19,910 Depression 1929 to 1939 and 29 to 39 roughly which was the beginning of World War II. 35 00:02:19,960 --> 00:02:22,950 Another big seismic traumatic thing in the world right. 36 00:02:22,950 --> 00:02:23,890 World War II. 37 00:02:23,970 --> 00:02:26,400 And we'll see well what happened between like vines vested right. 38 00:02:26,420 --> 00:02:30,390 You know at the beginning of the Great Depression maybe it's earlier in the year in 1929 through the 39 00:02:30,390 --> 00:02:31,080 Great Depression. 40 00:02:31,080 --> 00:02:31,880 How do I do. 41 00:02:32,010 --> 00:02:37,290 And how about 1929 to 1930 45 46 as far as World War II. 42 00:02:37,400 --> 00:02:41,940 And if that's the worst time you know how how did it end up looking for folks so let's go in take a 43 00:02:41,940 --> 00:02:46,800 look at that and I'm going to go back to many chimps as a nice little compound interest thing to really 44 00:02:46,800 --> 00:02:51,300 help us do that because they can look back at historical market returns and you can do some what if 45 00:02:51,300 --> 00:02:53,390 scenarios yourself as well. 46 00:02:53,640 --> 00:02:55,960 OK I'm back here at money chumped. 47 00:02:56,250 --> 00:03:00,570 This is backslash features market you know dash cagier. 48 00:03:00,630 --> 00:03:06,700 You just search money chimp compound annual growth rate of cagier CAGR you'll find to get the link there. 49 00:03:06,780 --> 00:03:12,000 In the end in the course as well and you're looking for overall stock market returns they have a look 50 00:03:12,000 --> 00:03:12,700 at future values. 51 00:03:12,720 --> 00:03:16,800 Well when I look at stock market returns historically is what we're going to look at and we're going 52 00:03:16,800 --> 00:03:20,370 to do some date ranges and things then look at these worst case scenarios. 53 00:03:20,550 --> 00:03:26,340 During the Great Depression and World War II in Calgary it basically stands for compound annual growth 54 00:03:26,340 --> 00:03:26,600 rate. 55 00:03:26,600 --> 00:03:29,670 So it's a different number than an average rate of averages. 56 00:03:29,670 --> 00:03:32,190 We looked at the first number was kind of average returns. 57 00:03:32,200 --> 00:03:32,970 You know things that. 58 00:03:33,300 --> 00:03:37,650 And that portfolio number looking at 10 percent an average but actually Kacher looks of things going 59 00:03:37,710 --> 00:03:38,910 up and down. 60 00:03:38,910 --> 00:03:44,310 And so it's more compounded and it gives you a little bit better actually number but a smaller number 61 00:03:44,490 --> 00:03:48,480 actually you're going to get a smaller return number if you do it from a compound annual growth rate 62 00:03:48,480 --> 00:03:50,850 if you get real kind of geeky about it I guess. 63 00:03:50,850 --> 00:03:52,110 But we don't to worry about geeky things. 64 00:03:52,110 --> 00:03:56,940 We just want to look at returns over the years and you can see on the left hand side here I love how 65 00:03:56,940 --> 00:03:58,290 they have the returns for every year. 66 00:03:58,290 --> 00:04:01,810 So if you're a winner like wow was 2000 2009. 67 00:04:02,100 --> 00:04:08,310 I heard that was a big bounce back from from the you know the crash with the oil where the stock market 68 00:04:08,310 --> 00:04:12,690 went down 37 percent it bounced back up 27 percent during the Great Recession. 69 00:04:12,720 --> 00:04:15,030 You know a big a big dramatic time for us. 70 00:04:15,120 --> 00:04:15,660 But let's go. 71 00:04:15,660 --> 00:04:19,400 In more recent history but we're going to go back and look at the Great Depression. 72 00:04:19,470 --> 00:04:20,510 Because we want to see. 73 00:04:20,670 --> 00:04:22,080 I want I want to know the risk here. 74 00:04:22,080 --> 00:04:23,930 I want to know what's the worst case scenario. 75 00:04:23,930 --> 00:04:26,930 So we'll look at the beginning here I'm typing just the dates here. 76 00:04:26,940 --> 00:04:32,430 January 1st 1929 so the big beginning the market crash happened October so there's a little bit of gains 77 00:04:32,460 --> 00:04:35,510 early there but really the big crash wiped them all out. 78 00:04:35,730 --> 00:04:40,210 And we're going to go to 1939 the end of 1939. 79 00:04:40,270 --> 00:04:45,900 You know towards 39 of course is when the world were to began so this is really kind of covering that 80 00:04:45,900 --> 00:04:48,810 whole that whole depression decade. 81 00:04:48,840 --> 00:04:52,860 So I put in the dates I don't include dividends like we're reinvesting dividends and we're going to 82 00:04:52,860 --> 00:04:56,700 see what our return knows and we'll walk through this year real quick so I calculate after I put my 83 00:04:56,700 --> 00:05:02,110 dates in and we'll adjust for inflation a second only demonstrate that first you can see the average 84 00:05:02,110 --> 00:05:07,590 return even during the Great Depression was three point eighty six and that's the average that's like 85 00:05:07,600 --> 00:05:13,240 compounded you know a compounded number would be less and that's where that annualized cagier is a negative 86 00:05:13,240 --> 00:05:16,180 return because if stocks go up then they go down dramatically. 87 00:05:16,180 --> 00:05:21,880 Takes a little more to get Neal recapture those gains so that compound annual number is a more conservative 88 00:05:21,880 --> 00:05:25,270 number and you can see that's a negative one point 1 percent. 89 00:05:25,270 --> 00:05:25,510 All right. 90 00:05:25,510 --> 00:05:30,610 So even in the great compression and lose 30 percent every year I lost 1 percent but over a long period 91 00:05:30,610 --> 00:05:35,290 of time over 10 years also the standard deviation is a measure of risk. 92 00:05:35,290 --> 00:05:37,630 The bigger the number the more volatile risky is. 93 00:05:37,650 --> 00:05:39,670 Thirty one percent is huge risk. 94 00:05:39,700 --> 00:05:46,230 Lots of big swings during the Great Depression so later in the course will we'll have some things around. 95 00:05:46,270 --> 00:05:51,010 Standard deviation and beta as far as measuring risk Neal learn all about that being real easy. 96 00:05:51,070 --> 00:05:55,110 But understand this just showing this big number means that's really really risky. 97 00:05:55,180 --> 00:06:00,610 And one dollar if you invested $1 U.S. they would have grown to 89 cents based on a carrier net growing 98 00:06:00,610 --> 00:06:05,980 at all means you would have lost money to your investment would be worth 89 cents and you can do the 99 00:06:05,980 --> 00:06:06,310 math. 100 00:06:06,330 --> 00:06:09,050 We have 10000 100000 how much less you'd have. 101 00:06:09,160 --> 00:06:14,230 But it's not the complete devastation that you might think of during the Great Depression but it was 102 00:06:14,230 --> 00:06:19,000 for a long period of time that's why holding stocks can be a more long term game. 103 00:06:19,030 --> 00:06:23,800 Now if we added adjust for inflation because something in the news will happen just think about the 104 00:06:23,800 --> 00:06:24,680 Great Depression. 105 00:06:24,820 --> 00:06:26,770 We're prices which is inflation. 106 00:06:26,770 --> 00:06:28,600 Inflation means prices are rising. 107 00:06:28,610 --> 00:06:33,920 And in goods and services where prices rising was more expensive to buy something. 108 00:06:33,970 --> 00:06:37,180 Actually no because think about all these people are out of work. 109 00:06:37,180 --> 00:06:39,280 The stock market's been crashing. 110 00:06:39,310 --> 00:06:42,640 So if we adjust for inflation let's see what happens here. 111 00:06:42,660 --> 00:06:48,610 Only just calculate we actually get a better return in comparison adjusting for inflation because prices 112 00:06:48,610 --> 00:06:50,510 went down or deflation. 113 00:06:50,710 --> 00:06:56,140 So actually even though my return was negative when we saw without inflation now where return is actually 114 00:06:56,140 --> 00:07:02,320 a little bit positive and our dollar in effect comparing inflation actually grew a little bit because 115 00:07:02,320 --> 00:07:05,260 of the pricing pressure of this very devastating time. 116 00:07:05,270 --> 00:07:06,910 And you can see that here. 117 00:07:07,480 --> 00:07:08,590 Now let's play this out further. 118 00:07:08,590 --> 00:07:13,830 Let's say well we're a long term investor who invested theah of the great crash which we're not induced 119 00:07:13,840 --> 00:07:16,320 is truly for academics for for. 120 00:07:16,420 --> 00:07:19,560 So you can see worst case scenario because it's so much better now. 121 00:07:19,570 --> 00:07:25,330 But we want to look back on the past this well and let's say we go up to 1940 six right. 122 00:07:25,380 --> 00:07:29,710 Right right bypass the end of World War II we took out the inflation measure we're in just for our dividends 123 00:07:30,080 --> 00:07:30,700 and what happens. 124 00:07:30,700 --> 00:07:34,430 We started in 1929 and we adjusted and we went to 1946. 125 00:07:34,480 --> 00:07:37,410 What was our return or that time period. 126 00:07:37,490 --> 00:07:38,800 You can see it's pretty low right. 127 00:07:38,820 --> 00:07:40,450 It's still well it's six point four nine. 128 00:07:40,450 --> 00:07:44,360 It's not so bad average but our Caig are adjusted returns 2.7 7. 129 00:07:44,400 --> 00:07:46,730 At the end of the world but not not negative either. 130 00:07:46,730 --> 00:07:49,440 Remember this is the Great Depression and World War Two. 131 00:07:49,620 --> 00:07:54,420 And in looking over all of the stock market over a period time still high standard deviation. 132 00:07:54,430 --> 00:07:58,630 But our dollar dollar grew as well so even during the worst period. 133 00:07:58,630 --> 00:08:00,560 And I'll show a better period here so we can see. 134 00:08:00,770 --> 00:08:04,900 And if we adjust for inflation actually something unique happens here or it should yeah where it went 135 00:08:04,900 --> 00:08:05,550 down. 136 00:08:05,560 --> 00:08:10,740 Our overall annualized return went down and our actual dollar grew less because we had prices start 137 00:08:10,760 --> 00:08:12,750 come back as there was a recovery. 138 00:08:12,860 --> 00:08:13,150 All right. 139 00:08:13,150 --> 00:08:19,330 So you can see even do these worst periods of time over over two decades almost two decades of the Great 140 00:08:19,340 --> 00:08:20,530 Recession war too. 141 00:08:20,670 --> 00:08:25,240 You know in effect my my purchasing power and my return grew over that time. 142 00:08:25,330 --> 00:08:28,720 And you can have fun with this and you'll play with it during different time periods. 143 00:08:28,720 --> 00:08:34,260 I mean if we were to you know have fun and look at let's say 1990 to the year 2000. 144 00:08:34,390 --> 00:08:41,340 Well let's say 1998 and you'll see some crazy numbers because that was during the time of the dotcom 145 00:08:41,410 --> 00:08:45,240 boom where the technology stocks took off because the Internet was new technology. 146 00:08:45,250 --> 00:08:49,310 You can see 18 percent and our dollar grew just dramatically. 147 00:08:49,300 --> 00:08:53,790 So you can see how you can have that and then how the bubble can converse as well. 148 00:08:53,800 --> 00:08:59,320 So the really the thing to take away from all of this is understand that you know your investments can 149 00:08:59,320 --> 00:09:00,890 grow over time. 150 00:09:01,030 --> 00:09:04,560 But there might be some ups and downs with it but the worst case scenario. 151 00:09:04,810 --> 00:09:09,420 My feeling is you're going to be OK in the stock market but it's got to be over long periods of time 152 00:09:09,430 --> 00:09:14,730 you can't sell right when the stock market crashed over two days and went down 30 percent. 153 00:09:14,770 --> 00:09:17,640 You need to kind of stay with it and neither can continue to invest. 154 00:09:17,650 --> 00:09:22,300 And that's the other secret sauce on this too is when we saw that money chimping thing looking at compound 155 00:09:22,300 --> 00:09:27,580 interest this is not calculating and if I kept buying on a regular basis because then as I'm buying 156 00:09:27,580 --> 00:09:31,270 low it's actually going to grow even more over over time. 157 00:09:31,270 --> 00:09:36,700 And if we look at this last chart here of the again of the stock market history returns by decade you 158 00:09:36,700 --> 00:09:38,720 can kind of see how the decades played out. 159 00:09:38,900 --> 00:09:39,950 Is the average number. 160 00:09:39,970 --> 00:09:43,600 You can see some of these big numbers and some of these small numbers as well. 161 00:09:43,600 --> 00:09:43,790 All right. 162 00:09:43,790 --> 00:09:44,530 So this is great. 163 00:09:44,530 --> 00:09:47,770 So the good news is yes he can make money in the stock market. 164 00:09:47,860 --> 00:09:53,110 Yes it's risky but if you do it over time and if you continue to invest you're going to be you know 165 00:09:53,440 --> 00:09:57,550 in pretty good shape and that's been certainly a secret of mine that really secret pretty well known 166 00:09:57,610 --> 00:10:03,390 among investors that new investing on me or of essence and and continue to educate yourself and what 167 00:10:03,390 --> 00:10:07,200 we're going to do in the rest of the course and making better choices in our stock our stock mutual 168 00:10:07,200 --> 00:10:12,540 funds and exchange traded funds is going to really help us and help us to be successful over the long 169 00:10:12,540 --> 00:10:12,930 term. 18645