A History of Market Ups and Downs
For the third day this week, we have seen significant volatility in the markets. Yesterday, the S&P 500 closed at 2,741.38, which places it close to a bear market, defined as a 20% drop from a recent high.
In times like these, it can be hard to watch the headlines and, closer to home, to worry about what’s happening in your portfolio. Especially following the stellar year we had in 2019, a market drop like this makes all of our pulses pound a little faster.
That’s why we find it helpful to look at the longer-term perspective. Although it has been more than a decade since we’ve experienced a true bear market, these market conditions are nothing new. With the exception of the Great Depression, every bear market we’ve experienced since 1926 has lasted about two years (or less) and has been followed by periods of sustained growth. As you can see in the chart below, the red valleys pale in comparison to the blue mountains. We have no reason to expect that this time will be any different.
Another perspective comes from Ron Lieber, The New York Times Your Money columnist, who recently published an article entitled, The Market Is Moving. Most People Should Sit Still. As he pointed out, in 1987, 2001, and 2008 stocks fell by 10-20% “in relatively quick fashion.” This is just the reality of markets, and we expect that “we’ll see it again after this passes. There’s always a next time.”
But since we know history repeats itself, should we have seen the market drop coming? And can we know when things will turn around?
Lieber continued, “Few people had the ‘spreading virus spooks markets and threatens economy’ square on their global meltdown bingo card. We don’t know what will cause the next drop, either. So predictions are mostly useless, today and always.
“But there are a couple things we know: Stocks have delivered decent gains over long periods of time to people who persist, and successful investors do not buy when prices are high and sell when they are low.”
We can’t tell you when things will turn or by how much, but we do expect that this, too, shall pass. We also expect that following sound investment principles – having a well-diversified, low-cost portfolio, keeping a long-term view, and rebalancing – will continue to deliver positive returns over the long-term.
If you have any questions, we encourage you to reach out to our knowledgeable team. We are ready to talk anytime.