It has been more than 3,280 days since we hit the bottom of the financial crisis on March 9, 2009.
The 17-month drop in market values that began on Oct. 10, 2007, saw the Standard & Poor’s 500 lose more than half of its value – it dropped from a high of 1,565 to its low point of 676.
If you had retired at the start with $1 million fully invested in the S&P 500, you would have watched your nest egg shrink to $430,000.
Unfortunately, no one notified us when it was over. In fact, to this day, I have met many people and heard many “gurus” who could never acknowledge that the ensuing nine-year bull market was real even as the S&P 500 quadrupled in value over that time.
Throughout the recovery, we have been bombarded with negative press stating the run was over. According to Business Insider on Jan. 15, 2010: “U.S. stocks surge back toward bubble territory.” Again on May 3, 2011, from Business Insider: “Why this stock market looks like the tech bubble of 2000 all over again.” The New York Times on May 6, 2014: “Time to worry about stock market bubbles.”
In addition to marking the official end of the financial crisis, it has been more than 3,280 days since we have experienced a bear market, which is defined as a decline of more than 20 percent. Bear markets typically occur every five years. We have come close – Feb. 8 saw our first correction of more than 10 percent in two years.
Corrections typically occur once every year. As Mark Twain said, “History does not repeat itself, but it often rhymes.”
I am not calling this a bear market – I don’t claim to know the future and I have yet to find someone who does. The business media has not helped anyone throughout this nine-year bull run as every step forward has been met with fear and trepidation.
I believe Peter Lynch said it best when he stated: “More money has been lost by investors preparing for corrections than has been lost in the corrections themselves.”
Market timing doesn’t work, but those who have a plan in place to ride out a bear market can greatly benefit their longer-term objectives.
If you are working, then you should appreciate bear markets as they allow you to save more money toward retirement by buying more shares at cheaper prices. Those who are already retired need to have access to reserves that they can sustain their lifestyle needs without withdrawing investments at depressed prices.
A cash reserve, a line of credit, fixed income investments and dividends can help sustain cash flows through the difficult draw-down period.
The results of staying invested through bear markets have historically rewarded the patient investor – since 1928, the S&P 500 has compounded at 7 percent above inflation, a bit more than twice that of quality corporate bonds, according to Investopedia.
Just like the financial crisis, there will always be talking heads discussing a new potential crisis or the need for a plain vanilla bear market that is part of the economic cycle.
Your plan and your reserves can help you stay invested through the worst of it until your broadly diversified portfolio of companies potentially rebounds to profitability in the new normal.
Until then, enjoy the rewards of owning great companies, but be prepared for the pain that comes with the inevitable – but historically temporary – declines.
As Pulitzer Prize-winning journalist Mary Schmich wrote: “Accept certain inalienable truths: Prices will rise. Politicians will philander. You, too, will get old. And when you do, you’ll fantasize that when you were young, prices were reasonable, politicians were noble and children respected their elders.”
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