This Week’s Blogger: Scott D. Heins, CFP®, IAG Chief Investment Officer
Americans’ lives changed three years ago on March 15, 2020. On that date numerous states began systematically shutting down anything that served as a gathering place for people to interact. Sincere social distancing was born.
Here we are three years later, and we are still coping with changes wrought by the pandemic. We miss the people who fell victim to the disease. Teachers are working hard to help students make up for lost classroom time. The supply chain chaos is still echoing through the economy. We are slowly cleaning up the unintended consequences of fiscal and monetary excesses enacted in times of economic stress.
While the human toll of the pandemic was just getting under way, the stock markets had been in steep decline since peaking February 19, 2020. Over the course of roughly a month, the S&P 500 Index plunged a harrowing 34%. Unnerving times, indeed.
The sincere temptation during times of significant market stress is to relieve that stress by exiting the markets and allocating those funds to cash. Under the influence of pure emotion fueled by reckless unfiltered pessimism, that sure approach can certainly seem like the most logical stress reliever in the moment.
Unfortunately, what appears to be the most logical solution during times of hyperbolic headlines has historically been the worst solution for investors’ long-term well-being.
On March 23, 2020 – a mere one week after all of the shutdowns began – the S&P 500 Index notched its cycle low at 2,237.40. I am sure there were thousands of investors that opted to “reduce their stress” near that low by “temporarily” switching from long-term investors to short-term traders.
In reality, this temporary stress relief only compounds future stress. Once an investor abandons their long-term strategy during a market downdraft, exactly when do they have the courage and discipline to revert back to their long-term strategy? Usually only after the market has gone up, everything appears “on track,” and they have missed the recovery by sitting in cash.
This week Monday the S&P 500 Index closed at 4,048.42 – even after a pretty pessimistic 2022. This is 81% higher than the spine-tingling market bottom a mere three years ago. The “stress-free” strategy investors-turned-traders embraced likely cost them 75% over the last three years. May their long-term retirement or legacy plans rest in peace.
Look at the stock market every day, and you will find it is up roughly 53% of the days and down 47% of the days. Luck is a trader’s best friend, but it is not something a trader can control.
Look at the stock market every decade, and you will find it is up roughly 94% of the decades and down 6% of the decades. Time is an investor’s best friend, and it is well within an investor’s control.
The best methodology we have found for putting time on your side is by using our time-tested Portfolio SegmentationTM process which we developed over 30 years ago. Our process aligns your personal cash flow needs with your investment portfolio to verify that time is on your side and that short-term market mayhem will not throw you off course.
Being a long-term investor requires large doses of confidence and optimism when the world is running quite low on both. In the most trying of times, even an investor’s confidence and optimism can be exhausted. But, using our Portfolio SegmentationTM process, time will still be an investor’s best friend.
Securities offered through LPL Financial. Member FINRA/SIPC. Investment advice offered through IAG Wealth Partners, LLC, (IAG) a registered investment advisor and separate entity from LPL Financial.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.
The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. One cannot invest directly in an index.
Sources: Daily market odds: IAG research; Decade market odds: Capital Group
Any opinions are those of IAG and not necessarily those of LPL Financial. Expressions of opinion are as of this date and are subject to change without notice. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. No strategy assures success or protects against loss. Investing involves risk including loss of principal.
Quote of the week:
Frederick E. “Shad” Rowe: “The stock market will always do what it must to frustrate as many investors as possible. But as to its long term direction, I have little doubt. It is up. . . . The real fool’s game remains, as it has throughout my career, attempting to time the stock market.”
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