Yesterday (11/10/22) happened to be the best day in the stock market since 2020! The U.S. stock market (S&P 500) rose 4.8%, International stocks surged 5%, and publicly-traded REITs increased by more than 6%. Did you hear much about this? I am guessing not as the news and media like to instead instill fear and anxiety as they know how to manipulate human behavior and there is more money to be made when humans are making decisions from a place of fear and anxiety. I want to let you know that despite all of what we are seeing in the media and the markets, we are still confident in your investment strategy.
To state the obvious, this year has not been kind to our investment accounts and it’s hard to maintain optimism when constantly hearing about the stock market decline and a looming recession. I know that your investment portfolio numbers look pretty abysmal and I understand that your portfolio is not just a number, but a representation of your years of hard work, goals, and dreams. A badass investor like yourself also knows that market declines are a part of the investing experience, and learning how to hang on to your plan in a time of uncertainty is a skill learned over a lifetime. Hopefully, this blog post can provide some resources and information that will help make it easier to exercise that skill and help put your mind at ease. Selling your investments to hold on to cash may seem compelling as your portfolio continues to drop in returns, but doing so may be the most costly decision you could ever make.
Recessions and bear markets are not a reason to sell everything.
A recession does not necessarily indicate a further decline in the stock market. Usually, by the time we recognize the economy has been in a recession, stock market returns can begin to recover. The green lines in the chart below indicate the time periods marked by a recession and return of the Total US Stock Market Index and the blue line is the growth of $100. Read this article by Dimensional “Three Crucial Lessons for Weathering the Stock Market’s Storm” for additional information and where you can find this chart.
Time in the market is always greater than timing the market. You need to stay invested in the market to take advantage of the returns as there is no way to target the best days, weeks, or months and you can lose out big time if you try to do so. The chart below also from Dimensional shows the impact of being out of the market for a short period of time. A hypothetical $1,000 investment made in 1997 turns into $10,367 for the 25-year period ending December 31, 2021. Over that same period, if you miss the Russell 3000’s best week, which ended November 28, 2008, the value shrinks to $8,652. Miss the three best months, which ended June 22, 2020, and the total return dwindles to $7,308. Even if you were the worst market timer and only invested at market peaks, but stayed in the market through the ups and downs, you will still come out ahead as illustrated in this awesome YouTube video and article by Ben Carlson. But you have to stay invested and ignore the noise!
Your portfolio with Empowering Finance is designed for the long term with your risk tolerance and goals in mind.
If you are watching the news during times like this you are going to see a lot of media on selling out of the market, hot stock tips, annuities, life insurance products, or other investment opportunities. Remember that those people do not have your financial situation, timeline, goals, values, and risk tolerance in mind when they make their claims and their goal is to make money off of your uneasiness and fear. The media is also only focused on the next days and weeks when it comes to market returns. Your investment portfolio is designed with decades in mind, you have time on your side.
Ally surveyed 900 investors and found nearly 1 in 5 consumers have closed an investing, trading, or brokerage account over the past 12 months, with most closures, 21% (!!!) by millennial and Generation Z respondents (aka those with the MOST time on their side and who have decades to weather these types of storms). If you feel like you want to make changes to your investments I encourage you to reach out before taking any action to avoid the risk of losing more than necessary because of emotional whims.
You might feel “this time is different”.
If you are semi-new to investing, you will likely be hearing and feeling “this time is different” which is understandable. However, this same phrase has been uttered at every downturn in the market which has happened countless times over the decades. So far, they have been wrong every single time. You can see in the graphic below the current events that rightfully caused a lot of fear and anxiety in the past. You can also see the growth of a dollar as measured by the MSCI World Index continuing to rise despite it all.
It is okay to be worried and stay disciplined.
Market downturns are unsettling, but if the market only returned positive numbers then you wouldn’t get the historic returns one does as nothing comes without risk. Historically, US Equity returns have been positive, on average, in the 1, 3, and 5-year averages after a significant market decline, as shown in the image below which is further explained in this Dimensional article. Stay focused on what you can control by staying disciplined in your strategy and focusing on what you can control.
So what does this all mean for your portfolio?
Empowering Finance creates investment portfolios to handle times like this by structuring highly-diversified, low-cost investment portfolios that are suited for your goals, time horizon, and risk tolerance. Unless something significant has changed in your life or your goals, there is no reason to take any drastic action to your investment portfolio. If you aren’t currently working with a financial planner or are on the fence, now is a great time to start a conversation. Vanguard’s “Quantifying Advisors’ Alpha” whitepaper quantifies that working with an Advisor may add “about 3%” to your investment returns, with 1.5% attributed to behavioral coaching (we are our own worst enemy when it comes to investing!). Not only can your portfolio be optimized to weather the storms, but I can also help you stay the course, stay disciplined, and stay focused on what matters most.
I hope this information helps and please know that I am here to answer questions you have. If you have concerns about your portfolio, investing, inflation, and you want peace of mind in these turbulent times, let’s chat. Reach out or schedule a consultation or to learn more.
Disclosure: This information is for educational purposes only and is not a recommendation to buy or sell any securities. This information should not be construed as professional advice of any kind and is not a substitute for one-on-one professional advice.