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The Most Wealth Destruction in Modern History

Posted June 21, 2022

Zach Scheidt

By Zach Scheidt

The Most Wealth Destruction in Modern History

If you're reeling from the market action over the last few months, please know you're not alone. This has been an absolutely brutal period for investors.

The amount of wealth that has been destroyed so far is staggering. While more speculative traders have been hurt the hardest, even the most conservative investors have also taken a hit.

Today, we're going to take a closer look at just how hard retirees have been hit.

But don't worry; it's not all bad news. Even in this tough market, there are still some great opportunities to start rebuilding your wealth and succeeding with your retirement plans.

The "One-Two" Punch Knocking Investors Out

By now you surely know that the U.S. stock market has officially entered a bear market.

But what you may not realize is that the current stock market pullback has destroyed more wealth than the Covid crash from two years ago.

According to research firm Bespoke Investment Group, the U.S. bear market for stocks has caused investors to lose roughly $12 trillion in wealth.

That's literally trillions more than investors lost during the dot-com bubble collapse or the financial crisis.

But it gets worse...

Because while a bear market for stocks is usually offset (or at least buffered a bit) by the stability of bond prices, that's not the case today.

Inflation is on the rise. To fight against this challenge, the Fed is raising interest rates.

Higher interest rates are causing bond prices to trade lower. And this has led to an additional $3 trillion of wealth destruction in the bond market.

This is especially troubling for investors who thought they were doing the right thing by diversifying into "safe" bonds.

As we've found out — and as my team and I have been warning you for well over a year no — bonds are no help to investors when interest rates are rising.

With both the stock market and the bond market slumping at the same time, even conservative investors who hold a 60/40 split between stocks and bonds are down roughly 18% this year.

(To put this number into context, the prior worst first half of a year for these diversified investors was only down about 6%. So we've tripled that ominous record.)

But Wait, There's More...

I wish that was the end of the bad news for retirees. But it gets worse…

Cryptocurrencies account for another $1.5 trillion in lost wealth over the last few months.

And even if you're not involved in this new area of the market, you've felt the ripple effect as scared crypto investors sell everything they can — including stocks — to meet margin calls.

All of this at a time when inflation is hitting multi-decade highs.

So at the same time retirees wealth is shrinking, the actual spending power of that wealth is also evaporating.

What a tragedy! I'm truly disturbed with the challenges that investors are facing today. 

And it's especially challenging for retirees' who can't necessarily take advantage of the good side of this economy (higher wages for existing workers).

Thankfully there are some things you can do to protect your wealth.

But you need to be extremely diligent about making your money work for you — and cutting out as much of the risk as possible.

Companies That Turn a Profit and Give You Income

I've been pounding the table on where you should be investing in a market like this.

Specifically, I want you to sell your speculative tech stocks even if it means taking a big loss on those shares.

Typically, the stocks that fueled the last bull market aren't the ones that will drive the next one. So get rid of those unprofitable cloud computing or artificial intelligence stocks.

They may never come back.

Second, I want you to invest in stocks that generate reliable profits. We've highlighted many of these names here in Rich Retirement Letter. I promise we'll continue to showcase the best opportunities for weeks and months to come.

These are the stocks that will give you reliable profits. And they'll also help protect your wealth because they won't fall as far even in a bear market.

Third, make sure you hold stocks that pay generous dividends. Many great companies pay you cash every quarter. With stocks trading lower, you can get more shares for less money — leading to bigger payments down the road.

It's especially important to own dividend stocks during bear markets because you can do so much with the cash you receive.

Each quarter you can opt to use your dividend cash to buy more shares of stocks that are trading at lower prices.

This can lead to even larger dividend payments down the road (because you own more shares). And the snowball can really add up — giving you much more income for years to come.

Most of all, please commit to yourself that you won't make emotional decisions during this bear market. Keep your cool, protect your wealth, manage your investments deliberately...

That's how we're going to get through this period and truly enjoy the retirement years you've worked so hard to save for.

Here's to living a Rich Retirement,

Zach Scheidt

Zach Scheidt
Editor, Rich Retirement Letter

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