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Putting the Market in Perspective Thumbnail

Putting the Market in Perspective


I don't make market predications. I don't think I can predict the future any better than you can. That doesn't mean I never look at the markets. I just tend to look at them historically and keep in mind that while this time feels different, it likely isn't that different than what has happened in the past. So, let's take a quick look at some history. On average...

  • The US stock market declines 10% every other year
  • It loses 30% every 4-5 years
  • It declines 50% once a generation

The S&P 500 is down 12% so far for 2022. It's been up the prior 3 years. And, for what it's worth, for the trailing 12 months (June 21 - June 22) the S&P 500 is down 0.74%, which doesn't sound too bad. So, what is going on at the moment is to be expected.

We can also take a look at how long downturns endure (from peak to bottoming out). Going back to the great depression:

  • We've had 6 bear markets that lasted 5 months or less.
  • There have been 5 bear markets that lasted between 17 and 31 months
  • Finally, the longest bear market was during the Great Depression which lasted 33 months

What to make of it all? I think the best thing to do is sit there and do nothing. Actually, what I really mean is stick with your plan (and I'll help you with that). If you're making periodic contributions to a retirement account, don't stop. If you have a plan for strategic rebalancing of your portfolio, rebalance when you hit your guard rails (which we'll be doing). What it really comes down to is timing the market is really hard. You have to figure out when to leave and when to get back in. Both are hard decisions. Imagine if you had gone to cash during the March 2020 crash. Even after this year's correction, the market is still higher than it was then. So, stay the course and remember time in the market is more important than timing the market (I know, that's an old one).

If you found this article useful, you might like the following blog posts:

Military Finances 301: Investing in Times of High Inflation

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