Lifeboat Drills
When a ship is on calm seas, the captain orders lifeboat drills. Get the crew on the stopwatch, and stress test them for when the inevitable rough seas come.
It’s always a good time for some stock market lifeboat drills.
Historically, stocks have generated extraordinary returns over time. This is why so many investors allocate a portion of their $ to stocks. They know that historically it has been one of the only methods for keeping ahead of the always advancing and erosive rising cost of living.
Returns, Jan 1990 – Nov 2024
| US Stocks | +3,120% |
| US Bonds | +270% |
| US Real Estate | +261% |
| US Cash | +50% |
And that +3,120% return was through some brutal times:
- 1990-1991 Recession
- Invasion of Kuwait
- Tech Bubble
- 9/11
- Iraq War
- 2008 Great Financial Crisis
- Debt Ceiling
- Multiple Elections
- Covid
- Etc
But we all know stocks don’t make it easy. They make you work for those returns.
The lifeboat drill is this:
- Odds are high that stocks will experience a pullback of 10% or greater in the next year (this is always true).
- What will cause it? Nobody can tell in advance. It really does not matter. You can only see the past.
- When exactly? Nobody knows. Run from anyone who tells you they know exactly when it will happen.
- On average, since 1928, stocks have declined by 10% or more about once each year. It is a normal part of the process…..it is how stocks move….and it is how all that massive stock wealth has been created.
- Ask yourself: “When that routine temporary 10%+ decline comes, can I handle it without doing this?”….
Here is what you don’t want to do:
- Rely on the financial news media, or the predictions of market pundits on TV or the internet
- Rely on your brother-in-law’s (or other relatives’) emotional opinions
- Use gut instinct
- Panic, which is just gut instinct turned up to 10
As always, contact our team if you need help or have questions. We will help you.
Author: Rick Wagner
Source: FactSet, Inc. US Stocks = S&P 500 Index US Bonds = Barclays US Aggregate Bond Index US Cash = 1 Year T Bill Index US Real Estate = US Residential Real Estate Index (House Price Index, published by the Federal Housing Finance Agency)
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The investments listed may not be suitable for all investors. Raymond James & Associates recommends that investors independently evaluate particular investments, and encourages investors to seek the advice of a financial advisor. The appropriateness of a particular investment will depend upon an investor's individual circumstances and objectives.
The Standard & Poor's 500 Index is a market capitalization weighted index of the 500 largest U.S. publicly traded companies by market value.
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