Let’s face it, there’s always something to be worried about. If we focused on what could go wrong all the time, we wouldn’t be able to do much else. I call this mindset “chicken little syndrome.” Yep, I made that up.
In 2020, we worried about COVID-19 and the U.S. presidential election. In 2021, there were new variants of COVID-19 and China’s simultaneous property market turmoil and regulatory crackdowns. Today, its high inflation, central bank policy tightening, and the Russia/Ukraine conflict…what’s next?
I love the table below, both because it’s helpful in remembering much of what investors have been through, and also because it emphasizes the mantra of “this too shall pass.” We need to remember that markets tend to bounce back when things calm down. In fact, since the beginning of 2017, the S&P 500 has more than doubled until now in spite of all the issues we’ve dealt with over the years.
Another way to look at it is by looking at all the past market declines, and there have been many subsequent recoveries. The worst of these downturns was the Great Depression, during which stocks dropped 80% and recovered twelve years later. In the bear market of the early-2000s, stocks declined 44.7% and had a recovery of four years which was the second-longest in history. In the bear market of 2007-09, stocks lost 50.9% over sixteen months and recovered 37 months later.
The point of all this is, downturns and recoveries aren’t always the same and stocks are prone to sudden and random declines for a multitude of reasons. Sometimes recoveries are quick; sometimes they drag on. However, the fall often comes after a period of growth that tricks us into believing the markets will always be good.
The bottom line: Diversification, time in the market not timing the market, and a long-term approach prevail. Join me for the next installment of Edu-Blogs beginning on July 6th.
Until next time…
One last thought, I believe an educated investor is an empowered investor. If you like what you’ve read and think your friends and family can benefit as well, please share.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
All investing involves risk including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
Source: (18 February 2022). The case for (always) staying invested. JP Morgan. Retrieved 19 May 2022.