In the Middle
Are we there yet? Where are we going? How much longer?
Spring break has come and gone for many families. While my son is not yet old enough to ask these questions, I can imagine how often questions like these were asked in cars over the last few weeks during spring break. Everyone wants to arrive at the destination as quickly and painlessly as possible (with as few stops along the way too).
The same sentiment can often be said during uncertain or declining markets. When will we get back to normal? Where are the positive markets? How much longer till we return to where we were?
First, let’s embrace that no market is the same as any we have experienced previously. In the last two years, we have experienced many events: a global health crisis, a presidential election unlike any other, and a 40-year inflation spike accompanied by soaring oil prices. Yet, to top it off, it is impossible to explain the tragic situation that is currently going on between Ukraine and Russia. It is a nightmare in the minds of many, and no one knows how this situation is going to be resolved.
When we look to the future, we don’t know what it holds. There are no facts about the future. All we can do is ask ourselves, what historical events have we lived through, and how can they teach us about the future and the long term?
Four headlines come to mind historically that demonstrate uncertainty like the events we are currently experiencing.
- The 1987 Crash – the largest one-day decline in stock prices ever – Monday, October 19, 1987. The S&P 500 closed the previous Friday at 283.
- 9/11 - on the night before the terrorist attacks on September 11th, 2001 the S&P 500 closed at 1,093.
- Global Financial Crisis – the S&P 500 closed the Friday before the Lehman Brothers filed for bankruptcy in September 2008 at 1,252.
- COVID Pandemic – the index closed at 3,386 on February 19, 2020.
These events mentioned, as well as the 20-year time frames in the charts below had a period of 12 trading days where the market lost 9%. This list includes some brutal recessions and memorable crashes, but also several incidents that proved to be more than blips. For a vast majority of our clients, looking at a 20-year time horizon is a reasonable time frame. Here are the results of the S&P 500 20 years after many asked “where do we go from here?”
|
20 Year Period |
S&P 500 Avg. Annual Return |
20 Year Period |
S&P 500 Avg. Annual Return |
20 Year Period |
S&P 500 Avg. Annual Return |
||
|
1950-1970 |
13.4% |
1973-1993 |
11.3% |
1997 – 2017 |
7.20% |
||
|
1955-1975 |
6.8% |
1974-1994 |
12.7% |
1998 – 2018 |
5.62% |
||
|
1957-1977 |
7.9% |
1978-1998 |
16.6% |
2000 – 2020 |
7.47% |
||
|
1962-1982 |
6.8% |
1979-1999 |
17.7% |
2001 - 2021 |
9.52% |
||
|
1966-1986 |
8.7% |
1981-2001 |
15.6% |
||||
|
1970-1990 |
11.6% |
1987-2007 |
11.7% |
Adding to the above, looking at ALL 20 year rolling periods going back to 1/1/28. The three worst 20-year periods in the history of the S&P 500 were:
|
20 Year Period |
S&P 500 Avg. Annual Return |
20 Year Period |
S&P 500 Avg. Annual Return |
20 Year Period |
S&P 500 Avg. Annual Return |
||
|
1928-1948 |
4.7% |
1929-1949 |
3.1% |
1930-1950 |
4.4% |
The market currently sits at today’s close on April 18th at 4,391 or 8% off its high in January of 4,796. Interestingly, this poor start to the year has not even reached the historical AVERAGE intra year decline since 1980 of 14%.
Who wouldn’t agree that a steady 4% return every year would be nice, rather than all these ups and downs? The fact that stock downturns scare people is one reason why stocks have historically delivered a higher return than other assets. Economists call it the “risk premium;” which can be roughly translated as: people are not willing to pay as much for an investment that will periodically frighten them to death as they would pay for an investment that delivers a less exciting investment ride. Every downturn provides an opportunity to buy shares at a lower price while many other investors are selling out at or near the bottom. Over time, as the market recovers, this can give a little extra kick to your overall return.
We get through times like these with a plan. Specifically, our Marathon Roadmap Process that we prepare specifically for you. We determine how much risk you and your plan can handle, as well as accordingly planning for moments in time where we will need to provide you with income in down markets.
Warren, Brian and I have had many clients who have asked are we there yet? How much longer? The vast majority stuck with their plan and have been rewarded.
In the end, isn’t the vacation always worth the trip?
Thank you for the trust and confidence you have placed in us and giving us the opportunity to provide education to you on your way to building your wealth.
As always, thank you for the introduction of your friends and family that so many of you have made. We are honored to serve you! As a service to our clients, we are happy to act as a sounding board for your friends and family. If any of them should need a second opinion on their financial situation, introduce them to www.striblingwhalen.com or call us at 678-989-0048.
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Regards,
Warren D. Stribling, IV, CFP®
Principal
warren.stribling@striblingwhalen.com
Brian E. Whalen, CFP®, CIMA®, AIF®
Principal
brian.whalen@striblingwhalen.com
Jacob Beauchamp, AAMS®
Financial Advisor
jacob.beauchamp@striblingwhalen.com
