Collectively, these experiences have generated endless amounts of sensationalistic headlines, fostering a sense of unease and a perception of fragility in our world. The constant barrage of information in our 24/7 news cycle makes it exceedingly difficult to discern truth from noise.
When such thinking infiltrates the realm of investments, it can lead to some rather unusual occurrences, and the past three years provide a prime illustration of this phenomenon.
Where It Started
As we approached 2020, financial markets had enjoyed a remarkable decade of performance. Throughout the period spanning from 2009 to 2019, both the S&P 500 and the US Aggregate Bond indexes encountered only a single year of decline. Despite occasional pessimistic narratives persisting post financial crisis, markets largely remained resilient, shrugging off negative news and continuing their upward trajectory with minimal disruption or volatility.
This “peace time” for markets came to a grinding halt with the news of Covid 19. A few short months after the virus started making headlines, we saw politicians shorting the stock market, and the world as we know it shut down.
It was ugly… In Q1 of 2020, the S&P 500 dropped nearly 20%, while other stock indexes consisting of small caps and mid cap stocks were down closer to 30%. There were days where markets rose and fell by 10+ %. The only ballast in portfolios throughout this time were high quality bonds and cash, which remained positive as the flight to safety was rampant.
As quickly as markets fell, they recovered. Amid all this market turmoil, the government stepped in and back stopped local businesses and financial markets. By August 2020, all equity investors that remained invested were made whole. Unprecedented to say the least and kudos to the 99 percent of our clients who didn’t panic.
The asset rally continued throughout 2021, and it wasn't until early 2022 that the consequences of this massive economic stimulus began to manifest in markets.
Inflation ran rampant, which led the Fed to raise short-term interest rates from 0 to 5.25-5.5%, resulting in stocks and bonds to go into a tailspin. In 2022 equities and bonds were down 10-20% and even cash investors lost a significant amount of purchasing power with inflation at 9.5%. In the end, 2022 proved to be one of the more challenging years for the individual investor. But… like we saw during the pandemic, investors didn’t have to wait long before things would turn around.
Throughout the first eight months of 2023, the S&P 500 has surged by approximately 18%, and we find ourselves just 4-5% away from reaching all-time highs.
The final outcome is yet to unfold definitively, but it appears that the Federal Reserve is diligently carrying out its mandate, exerting a notable impact on slowing down the economy, curbing inflation, and setting the stage for the start of the next economic cycle.
As for the bond market, the rebound hasn't been as swift, but now, with bond funds offering yields exceeding 5%, investors are finally receiving compensation for their savings and are incentivized to diversify their portfolios with bonds.
Once more, the future remains uncertain, and while nobody can predict our path ahead, everyone deserves recognition for enduring this turbulent period of ups and downs. Reflecting on what we've weathered serves as a valuable reminder that market cycles differ, and the road ahead remains unpredictable. Nevertheless, there are a few key insights to glean from this journey.
Takeaways
Stay invested. Historically, markets have seen positive returns in three out of every four years, with the S&P averaging annual gains of 8-10%, while bonds have earned 4-6%. It's important to note that these returns are not linear, and they come with inherent risks. Nevertheless, history teaches us that the winning strategy is to stay invested and stay committed to your chosen path and asset allocation.
With that said, the future will forever remain uncertain, and markets have a knack for defying our expectations. However, this leads me to my ultimate and most critical takeaway...
Craft a plan. A full financial plan, not a “what stock do I need to buy now plan”…
By gaining a deep understanding of your current financial situation and establishing clear goals for your financial future, you can make investment decisions and allocate your assets with purpose. If your objective is solely focused on maximizing returns regardless of circumstances, emotions can creep in, leading to poor decisions. Having a well-thought-out plan establishes the rules of the game, enabling you to approach the long-term investment journey with a rational and non-emotional mindset.
Frank Vance
Retirement Capital Advisors
800 Battery Ave SE
The Battery, Suite 100
Atlanta, GA 30339
Office- 412-722-3795
Securities and Advisory Services offered through Commonwealth Financial Network®, member FINRA/ SIPC, a Registered Investment Adviser. Fixed insurance products and services are separate from and not offered through Commonwealth Financial Network
Disclaimer: The term markets, market, S&P 500, or any other reference to financial markets are notional concepts and not specific investment advice or suggestion. This article does not constitute specific investment advice, and none is implied or inferred. This article is for clients of Retirement Capital Advisors only. Investing entails risk of loss of principal and no guarantee of returns are inferred or implied. Please consult your personal financial advisor if you have any questions.