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 On the front page of the Wall Street Journal today is a headline: “Stocks Decline as Bond Turmoil Spreads, S&P 500 Hits New 2022 Low and Treasury Yields Climb on Fresh Slowdown Concerns” (WSJ, September 30, 2022).As you are fully aware, this has been a really tough year to be an investor.
For accumulators, low investment prices are an opportunity. If you are still investing in your company 401K and/or saving regularly, you are buying in at prices not seen for a while. This is much scarier for people who are in the distribution phase of their investment cycle. We have been hearing many clients say that they do not think this will get better for a long time, and they are understandably concerned. Let’s look at some real market returns for different periods of time for some perspective. S&P 500 Index in the Financial Crisis |
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The graph above shows the performance of the S&P 500 Index from January 2007 through March of 2009 – the Financial Crisis. You remember how bad things were. A deep recession hit that took years to grow out of, real estate prices crashed, and some properties could not be given away, especially in Florida. Interest rates were very low with the hope of incentivizing people to borrow and spend, but the banks, having been burned by bad loans, made it very difficult to access funds. Things were bleak. But then notice the little bounce up in March of 2009. March 9, 2009, the markets started to recover and reversed themselves and we entered a bull market of epic proportions. S&P 500 Index in the Covid Correction |
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This graph depicts the next big correction in the S&P 500 Index, the time period from January 2020- March of 2020 – the Covid Correction. What is so interesting about this particular correction is we were only one month into the pandemic when the stock markets decided that things were going to be OK and began a swift recovery. The world had no idea what was going to happen next. It was clear that the “two-week shutdown” was going to be much longer than two weeks and there was no end in sight. It was impossible to tell that there would be parts of the economy that were going to be strangely robust: the great toilet paper hoarding escapades, people buying bigger homes, home improvements and vacation home purchases to which people could escape captivity from their primary homes. No one would have foreseen that. Yet, the markets recovered a good year or so before we began to emerge from captivity. We are just showing you the S&P 500 Index here, but markets across the world experienced similar returns. If we shift our perspective from the short term, scary times and pull back the lens to longer term returns, a different picture emerges. |
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This graph depicts 40 years of returns for the S&P 500 Index. When you view the Financial Crisis with this lens, you see the fairly deep dip, but then also that they are followed by returns that would have been devastating to a portfolio to miss. The same can be said of the Covid Correction. The markets moved up rapidly, following a steep and rapid decline. I know that you have heard me make this point before, but when we see headlines like the one in the Wall Street Journal, I think it bears repeating. The best thing we can do is stay with the investment philosophy that we know works in the long run.We need to stay invested, look for opportunities to buy more stocks and refresh your financial plans. Our brains are wired to “do something,” which can be lethal to long term investment success. The markets will recover, and it is impossible to know when. The real risk is missing the recovery. |
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