It's been a tough year so far for the stock and bond markets. But before you make any rash decisions, it's best to take in some perspective. Here's advice I share with my clients:
1. The stock market is not the economy but rather based on expectations for the economy in six to 12 months, so stocks can move up during a recession—or down when the economy’s expanding. And coincidentally, the stock market doesn't always get it right - there have been 26 bear markets since 1929, but only 15 recessions during that time.1
2. If you’re swept up in volatility, remember that markets have been positive more often than not. In fact, stocks have turned in a positive return 65 out of the last 85 calendar years, which means they’ve been on the rise 76% of the time.1
3. The stock market can move fast, missing one or two of the best days in the market can adversely affect your return. As the chart below shows, by staying fully invested over the past 15 years, you would have earned $24,753 more than someone who missed the market’s 10 best days.2
4. Are you worried about investing in this environment? Studies have shown, it's time in the market that has outweighed the timing of your initial investment. As the chart to the right shows, even if you had the worst possible timing—meaning you invested $10,000 on each of the five peak days immediately before a bear market began—your investments would have lost value initially but recovered in an average of 2.7 years.1 Your hypothetical investment of $50,000 would have grown to $229,405 as of December 31, 2021.
5. Continue to add to retirement accounts if it makes sense for your situation. I can't emphasize enough to my clients the importance of saving, saving, and more saving. Too many investors focus on the short-term swings in the market, but miss the big picture and that's not saving enough money in the first place for retirement. It never feels like the right time to invest, but the U.S. stock market has been resilient throughout its history. As Figure 2 below shows, stocks routinely recovered from short-term crisis events to move higher over longer time periods. My advice: Continue to add to your investment accounts if it makes sense for your situation.
For more information or to schedule a call to review your investment and financial planning, please feel free to email me.
Michael Aloi, CFP
1. Morningstar, Ned Davis Research, Hartford Funds
2. Putnam Investments
Investment advisory and financial planning services are offered through Summit Financial LLC, an SEC Registered Investment Adviser, 4 Campus Drive, Parsippany, NJ 07054. Tel. 973-285-3600 Fax. 973-285-3666. This material is for your information and guidance and is not intended as legal or tax advice. Clients should make all decisions regarding the tax and legal implications of their investments and plans after consulting with their independent tax or legal advisers. Individual investor portfolios must be constructed based on the individual’s financial resources, investment goals, risk tolerance, investment time horizon, tax situation and other relevant factors. Past performance is not a guarantee of future results. The views and opinions expressed in this article are solely those of the author and should not be attributed to Summit Financial LLC. Summit is not responsible for hyperlinks and any external referenced information found in this article.