5 Surprising Investing Facts That You've (Probably) Never Heard
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This show is a proud member of the Retirement Podcast Network. Welcome to the Stay Wealthy Podcast. I'm your host, Taylor Schulte, and today I'm sharing five 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, and they always prove to be a well-received, much-needed break from the daily news cycles and complexities of retirement and tax planning.

If you missed the fun fact episodes that 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 just find myself continuing to revisit and share with people. The first was a statistic that I shared about investing in cash, which has become an increasingly popular topic in recent years with interest rates now at levels that 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 on an investment 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 seven decades, inflation outperformed cash. As Michael Batnick has wisely stated in some of his writings, quote, 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 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, seven out of 10 people turning 65 today will need some form of long-term care services in their lifetime. In addition, about 25% of those people will need long-term care for two years or more.

Now, while these statistics are true, what often isn't shared with retirees is the actual damage long-term care might do to their wallets, i.e. how much a long-term care event might actually 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. Only about 13% of people age 65 today will spend over $150,000 in 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 that you should just 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 to protect against long-term care expenses destroying their retirement plan. Okay, enough about last year's episode. Let's jump into today's five surprising facts about investing and retirement planning. To access the articles and research referenced in today's episode, just head over to youstaywealthy.com forward slash 223.

Okay, the first statistic to share with you today was sparked by the recent volatility in the markets and more specifically, the media's response to the volatility. As some listeners might know, and I hope it's a very small percentage of listeners, for the last 14 years, CNBC has run what they call a markets in turmoil special report whenever the stock market has experienced substantial losses in a short period of time or just 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 this uncertainty and fear.

While these markets in turmoil special reports are reportedly trying to bring investors the latest information and quote, 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

But as always, investors would have been wise to ignore the talking heads or at the very least refrain from making dramatic changes to their investments as a result of what they watch or what they read. For one, because the media doesn't have any knowledge of your financial situation or your investment goals.

but also because of CNBC's track record. And this is truly one of the craziest stats that I've seen in recent years. So since 2010, CNBC has run their markets in turmoil special report 106 times or about seven and a half 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. Yes, that's four zero, a positive 40% return. I'll say that again. The average one year forward return following every markets and turmoil special report done by CNBC since 2010 is a positive 40% return.

Perhaps even crazier is that 100% of all one-year forward returns following the markets and turmoil special were positive. In other words, if you invested in the US stock market via the S&P 500 on any one of these 106 days when the markets and turmoil special report 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 23rd, 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 during the COVID crash.

Two quick things here regarding this statistic before we move on. First, I don't want to ignore how incredibly challenging it is to go against the grain, to ignore the fear and uncertainty, to 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's no end in sight, that the markets could go 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 else is selling, it should not be expected of every investor to be able to do the same. Doing nothing is hard enough. And thankfully, it's been proven that doing nothing and staying the course and ignoring the noise is more than sufficient for investors to experience long-term investment success.

Second here, Charlie Bilello, the market strategist who deserves all the credit for this markets and turmoil statistic, he pointed out that these CNBC specials started in 2010. And therefore, this 14 year time frame is limited to what he calls a by the dip bull market run where corrections have been relatively short lived.

And so 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 and turmoil indicator to have a perfect batting average forever.

But he also reminds us that whether you're a day trader hoping for a short-term bounce in the markets, or you're an investor looking to add long-term exposure, there's been no better contrarian signal that you should always prefer a markets and turmoil special report to the regular programming because panic historically has created opportunity for investors. Okay, 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 Gatzmeier. Travis shared a historical chart from Morningstar highlighting the time periods when international stocks outperform U.S. stocks.

The chart shows that from 1974 to 2023, U.S. stocks have outperformed international stocks 59% of years. In other words, in the majority of years over the last five decades, U.S. stocks have had higher returns than international stocks.

However, the chart goes on to show that when U.S. stock returns were less than 6%, international stocks outperformed 96% of the time. And when U.S. 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 necessarily to boost long-term returns or try to outsmart the markets. It's to safeguard against a single country or asset class 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, U.S. stocks have had an average annual return of about 10% throughout history, but that U.S. stocks rarely actually deliver 10% returns. In fact, since 1927, U.S. stocks have had more years with returns between 15 and 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've assumed, investments rarely deliver average returns year over year. And while it's easy to look back and see that just simply owning US 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 that move in different directions, allow you to sustain income and take withdrawals from investments that are doing well and refrain from having to sell others at a loss.

Okay. Switching gears here for our third statistic and venturing into the world of insurance, specifically auto insurance, according to CCC intelligent solutions and 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 plus miles per hour. Even

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 that they cause.

As car dealership guy 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 that are caused by people driving around 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 over 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 per year. On the other end of the spectrum, New Hampshire is the cheapest state where drivers are paying on average $1,000 per year, a difference of almost $3,000 compared to Maryland.

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 really good time to confirm that you have something known as uninsured underinsured motorist coverage included in your auto policy. That way, if one of these drivers who is not carrying the proper insurance, if they hit you, you're covered by your own policy and you aren't forced to pay out of pocket.

Some states require this coverage, but the vast majority in the country do not. So check your auto policy. And if you want to learn more about this type of coverage and also how to shop for cheaper auto insurance, I'm going to provide two good resources in today's show notes, which again can be found by going to youstaywealthy.com forward slash 223.

Okay, the fourth stat to share with you today is really a handful of fun facts about a single topic. One of our favorite topics here on the show, actually, taxes. More specifically, these facts highlight some of the more unusual aspects and historical quirks about the complexity of the US tax system.

And since there isn't much we can really do in response to this complex system, other than find the humor in it, I'm going to run through these kind of rapid fire style. So to start, the U.S. federal tax code continues to get longer and longer every year and is now nearly 4 million words long. To put that into perspective, the U.S. federal tax code is roughly four 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.

Speaking of long, it's estimated that Americans spend over 6 billion hours per year complying with federal tax requirements and filing their returns, equivalent to nearly 10,000 lifetimes. Next, I know that we all feel like taxes are high now, but in 1944, the highest U.S. tax rate reached 94% for incomes over $200,000.

And while tax rates are not that high today, it's no secret that many people still try to find loopholes in the tax system to try and win one over on the IRS. One example of these loopholes being exposed was in 1987 when the IRS began requiring social security numbers for dependents. As a result, roughly 7 million children just suddenly vanished from tax returns.

In case you're wondering here, depending on their relationship to the retiree and the qualifying situation, dependents like children may receive social security payments between 50% and 100% of the qualified retirees benefits. In other words, claiming a dependent on your tax return can lead to more money in your family's pocket.

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 the 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.

However, in addition to the small sample size of just 50 accountants, the different answers may be a result of these tax professionals completing a paper tax return in the study that was done because according to TurboTax, paper returns are 41 times more likely to contain errors than electronic returns.

And finally, this last one is for our listeners up north in Canada. Believe it or not, 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, this exemption is limited to toys that are not, quote, beer, liquor, or wine. It's likely no surprise that 72% of Americans surveyed believe the federal tax code is too complex. And since we don't have any control over simplifying it, all we can really do is find the humor in the complexity and do our very best to pay our fair share of taxes without leaving the IRS a tip along the way.

Okay. 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. Kathy 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 here, American investor, Kathy 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 in six short years.

In the early years of the fund, investor money was pouring into it at the same pace as industry giants like Vanguard and BlackRock. Everyone from mom and pop investors to institutions, they wanted in on the story that Kathy was selling that investing in things like artificial intelligence, self-driving cars, the metaverse, rockets, and precision therapies, i.e. disruptive technology enabled innovation, as it's often referred to, that these things are the key to high investment returns.

And for a while, her bets were paying off. From October of 2014 to February of 2021, the ARKK Innovation ETF, symbol A-R-K-K, 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 plain 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 Kathy 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 often too late.

But let's say that you weren't too late. Let's say that you stumbled across the ARK Innovation ETF when it launched in October of 2014, and you decided to invest $10,000 in this fund. 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 at its peak, was recently named as the number one wealth-destroying fund family over the past 10 years by Morningstar. The ARK Innovation Fund now only manages $5 billion of assets

But Kathy is not giving up yet. Just recently, she was quoted on CNBC saying, quote, given our expectations for growth and these new technologies, I think we're going to see some spectacular returns over the next five years. Look, she may be right, but what if she's not? Or hear me out. What if there's a more prudent approach to investing, an approach that does not 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 forward slash 223, where I'm providing links to all the articles and research referenced. 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 at youstaywealthy.com.

Thank you, as always, for listening, and I'll see you back here next week.