We made it!
Whenever you depart on a trip, you expect to make it back home at some point. You commute to work, you expect to come home later that day. You travel to grandma’s house for a holiday, you expect to come home in a week or so. You leave for a mid-winter cruise, you expect to come home in a couple of weeks with a suntan.
But how would you feel if the itinerary and length of your trip was completely undefined and entirely controlled by other people? And what if your trip includes bouts of pessimism and regret? Is that a trip you would take?
Of course, the answer is yes if you are a long-term investor.
On Friday, January 19, 2024, the S&P 500 index completed a bear market roundtrip journey that started on January 4, 2022. It traversed strong rumors of an imminent recession, two wars, an election, the steepest Federal Reserve interest rate hikes in history, and bank failures. What a trip it was. Yet, we arrived back where we started.
One of the most difficult parts of bear market roundtrips is that we never know when they actually start until we are weeks or even months into the trip. January 4, 2022, seemed like any other day in the financial markets. The S&P 500 index was down a whopping .06% that day.
The bear market roundtrip could have been cancelled in March or April 2022 when the markets bounced back a bit, but we learned we were on a bear market roundtrip five months after it started in June 2022. In retrospect, we now know that we reached our furthest destination on October 12, 2022, and we have been headed back home in fits and starts ever since then.
This particular bear market roundtrip lasted 513 trading days. In planning for our clients’ future, we always assume that today could be the first day that the next bear market roundtrip begins, and we always prepare our clients’ portfolios for a roundtrip to last 2,000 trading days. Thus, this bear market roundtrip – while it seemed like a really long journey – lasted only about 25% as long as our preparations.
Obviously, the only way to successfully return home on a bear market roundtrip is to resolutely continue on the trip despite all of the alluring sirens screaming to abandon it. “Did you see your last statement? Stop the bleeding!” “The economy is going to tank.” “[Insert candidate here] is going to win and destroy our country.” And many other creative yet destructive sirens that your mind can conjure.
I am confident many short-sighted traders converted their roundtrip ticket to an ill-fated one-way trip over the last two years. They misguidedly preferred the certainty of locking in losses to the uncertainty of the bear market roundtrip.
For the patient and wise long-term investors, welcome home! While you may not have thoroughly enjoyed your bear market roundtrip, you endured and made it back safely.
While we are cautiously optimistic you will have some time at home before our next bear market roundtrip begins, know that your financial plan is prepared for it to begin today and last four times as long as our most recent roundtrip.
Thank you for choosing us to prepare for your journey!
Quote of the week: Shelby Cullom Davis: “You make most of your money in a bear market, you just don’t realize it at the time.”
Graphic Credit: IStock #915092842 Credit: monsitj