We Planned for This
We specialize in creating lifelong financial plans based on historical returns, particularly the S&P 500's average annual return of around 10% (7% after inflation) over the last 100 years.
The financial plans we build for you are often thought to be “working” when the markets have positive returns. But when the market declines, it's easy to assume the plan has stopped working and the thought of “this time it’s different” creeps in.
It is crucial to remember that the 10% average annual return of the S&P 500 includes a 30% drawdown, on average, every five years and a 5% drawdown each year. Thus, market declines are part of our assumptions, and in a very real sense "we planned for this."
You could say the economic/financial/geopolitical current crisis of today – tariffs – are extremely different from the previous “walls of worry” over the last 5 years:
- 2024: As is said EVERY four years – “The most important election in history.”
- 2023: Middle East and Russia/Ukraine conflicts
- 2022: Federal Reserve rate hikes
- 2021: High inflation
- 2020: COVID-19
…and you’d be exactly correct! It is the shock of these events that generates a panic response.
- A horrendous inflation spike in 2022 – S&P 500 down 25% – was very different from:
- COVID in 2020 – S&P 500 down 34% in 33 days – was different from the:
- Global Financial Crisis of 2007-2009 – S&P 500 down 57% – which was entirely different from the:
- Dot-Com Implosion and the accounting scandals of 2000-2002 – S&P 500 down 49%.
Despite different crises, long-term investments in great American companies have proven resilient. For example, $100,000 invested at the peak of the dot-com mania in March 2000 grew to $685,000 by December 31st, 2024. The phrase “this time is different” doesn’t actually tell investors anything useful…
Staying patient and disciplined allows history and logic to guide us through market declines. Our long-term plans assume the historical depth and frequency of stock price declines. Therefore, when a significant decline occurs, we can confidently say, "We planned for this."
*Please consider perusing this piece “Keys to Prevailing through Stock Market Declines.”
Disclosure: S&P 500: This index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. It consists of 400 industrial, 40 utility, 20 transportation and 40 financial companies listed on U.S. market exchanges. This is a capitalization weighted calculated on a total return basis with dividends reinvested. The S&P 500 represents about 75% of the NYSE market capitalization.
