The recent volatility in the markets has been unsettling to say the least. It can be easy to lose focus during these times and want to sell positions and go to cash or more conservative investments. This gut reaction is very normal but not always the best course of action. I think it’s a great reminder to look at similar times in history prior to making any big decisions about your portfolio.
It can be helpful to understand current economic conditions and the drivers of market returns but this is not always helpful. This is because there will always be something going on causing market uncertainty albeit geopolitical unrest, moving interest rates, tax legislation, or missed earnings for example. The best thing to do is focus on what you can control and let markets work for you.
Bulls, Bears, and Long-Term Benefits of Stock Investing
The chart below shows a comparison of bull and bear markets of the S&P 500 from 1926 through 2021. The most recent being COVID in 2020 which lasted for one month. This year we have been in correction territory. This is a decline of 10% or more from a previous peak. This is not quite a bear market which is a 20% decline from a previous peak.
When looking at history We’ve had 17 bear markets and 18 bull markets. So, a little more than half of these scenarios have been increasing bull markets. The interesting point here is the difference in the length of time between the bears and bulls.
The average bear market lasted roughly 10 months while the average bull market lasted roughly 55 months! We’re talking about a little less than a 1 year decline average compared to almost five year incline. This is the point of risk vs. reward. We wouldn’t be compensated for taking on the risk if there wasn’t any volatility. Think about it as a little short term pain with the expectation of a long term reward.
If you’d like an objective second opinion about your finances, please contact Michael Shea, a CERTIFIED FINANCIAL PLANNER™ and owner of True Equity Wealth Management LLC. Email him at [email protected] or fill out a contact form.
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