It’s official, the S&P500 finally closed down more than 20% which means this period in 2022 is officially considered a bear market.
For many reasons, I think this is a good thing.
First, some perspective: just because this officially qualifies as a bear market, doesn’t mean this is day 1. We are actually 165 days into this one. I.E. The S&P has been on a downward trend for almost 6 months. If there’s one thing the media is good at- it’s doom and gloom and they’ve certainly been feeding and fanning some pretty intense fears around ALL of the uncertainty. Of this impending bear market that as far as I’m concerned we’ve already been in. So now we’re here- and we can all take a breath, no? We don’t have to wait for the shoe to drop we can talk about what it actually means.
So here’s the good news:
This is the 11th bear market since the 1950s. We’ve essentially averaged one bear market every 6 years. Why is this good news? Because it means bear market are common and we can look to past ones to understand what to expect now. We have DATA. Data is good.
Now here is is the REALLY good news: the current market (even down 20% today) is up 97 times from the bottom of that first 1950s bear market back in 1957. (Feel free to click on the chart below if you want to dive deeper into the numbers.)
Now, I’m 33 years old. So while I think it’s pretty incredible that the S&P500 grew from 38.98 to todays price of 3,780, a 65 year span doesn’t encompass my experience in the market. It’s kind of like those insane stories about people buying homes for $165k in the Boston area when a comparable home in my adult life couldn’t be found for under $500k. I know they’re true, but it doesn’t feel like proper anchoring. You know what does, though? Looking at the growth from the bottom of the 2009 bear market and comparing it to now. The S&P was at 676.53- it’s grown 6 times in 15 years EVEN with the recent 20% drop. And those numbers don’t include compounding from dividends. Insane.
Something else to keep in mind is that all of these metrics and the bear market talk is ONLY with reference to the S&P500. One section of a much wider marketplace. I don’t know about you, but my personal portfolios and those of my clients are globally diversified. So while pretty much everyone is down right now, the actual experience for us is NOT 20 plus percent. And that knowledge truly helps me sleep at night and stay the course.
I feel like I say this ad nauseum, but it bears repeating: at the end of the day, what matters with regard to your market experience depends on your situation. There is no one size fits all
If you’re in accumulation phase like me (i.e. you are in a phase of your life where you are actively earning income and can find money to invest consistently), everything is on sale right now. I believe that what you buy today, if you’re purchasing in a diversified and disciplined manner and not letting fear damper your investing clip or change your strategy, will increase substantially over time. This is true EVEN if you have a shorter time horizon and are close to retirement. The key in this case is to make sure you have adequate cash reserves, diversification in assets, and someone who can guide you through an appropriate withdrawal strategy factoring in the volatility in the market and tax implications when the time comes to pull income from your portfolio.
If, like many of my clients, you’re in a withdrawal phase and do not have income to add to your portfolio at this time- try to turn off the TV. Keep in mind that if you have done some retirement planning with someone you are confident knows what they’re doing, they factored in times like these. Like I said earlier in the email, bear markets are quite common. A large part of planning around retirement income and distribution planning has to do with factoring in things like market volatility and inflation.
If proper assumptions were used AND you’re meeting with someone on a regular basis to confirm that the withdrawals you’re making or planning to make are still sustainable- you’re likely doing ok. If you’re going it alone and making distributions based on a plan that was generated for you several years ago, well, it very likely makes sense for you to go back to that person to make sure you’re still okay. Both the TIMING and the AMOUNT of your withdrawals from your retirement portfolio have so much more to do with the viability of your retirement strategy than individual market swings.
If there’s one thing I’m confident of, it’s if you don’t let fear best you you’ll get through this and come out better off on the other side. And if you won’t take my word for it, check out some articles that give some additional perspective linked below: