Ever since the stock market was first introduced, a natural concern for investors is the market declining in value. In fact, there hasn’t been a single year since the Great Depression during which world events have not impacted investor sentiment. While these world events caused by either man or nature occur every year, financial markets have always found a way to survive.
Having a good quality portfolio with an established process is one way to help manage fear. Establishing an asset mix that is consistent with your cash flow requirements, time horizon, investment objectives, and risk tolerance is also key. For investors with longer-term time horizons, declines in the markets may provide an opportunity to buy good quality investments at lower prices.
Trying to time when markets are going to pull back or reach new highs is very challenging. Getting it right on both sides of the equation is even more difficult.
To illustrate this point, the following scenarios were compiled by Scotia Asset Management using data from the Bloomberg S&P 500 Composite Total Return Index (the “Index”) between Jan. 2, 2015, and Sept. 30, 2024. It assumes that, at the beginning of January 2014, four investors (A, B, C, and D) each had $100,000 to invest.
• Investor A missed the 30 best days the accumulated returns would be $8,720, and value of Investor A’s account on Sept. 30, 2024 would be approximately $108,720.
• Investor B missed the 20 best days the returns would be $41,210, and value of Investor B’s account on Sept. 30, 2024 would be approximately $141,210.
• Investor C missed the 10 best days the returns would be $94,640, and value of Investor C’s account on Sept. 30, 2024, would be approximately $194,640.
• Investor D decided to stay invested the entire period and accumulated returns would be $235,660 and value of Investor D’s account on Sept. 30, 2024, would be approximately $335,660.
When markets go though a correction or sudden decline, it can cause investors to behave irrationally and make poor investment decisions. However, as the examples above show, markets tend to reward those investors with patience who stay the course. With a well-designed portfolio, with cash set aside for cash flow and good quality holdings, the decision to stay invested is made much easier. We have always made it through periods of uncertainty and challenging market conditions in the past. In the long run, the stock market has an upward tendency.
Below is a chronology of significant events that have resulted in market fears to hopefully lend some important perspective that the current concerns in the markets are yet another bump in the road of investing. Concerns that people have today will likely pass only to be replaced with other concerns at some point in the future.
Financial markets have managed to survive the following major events and concerns:
- 1929-30s- The Great Depression
- 1939 - Second World War begins
- 1940 - France falls
- 1941 - Pearl Harbor
- 1942 - Wartime price controls
- 1943 - Industry mobilizes
- 1944 - Consumer good shortage
- 1945 - Post-war recession predicted
- 1946 - Dow tops 200, market “too high”
- 1947 - Cold War begins
- 1948 - Berlin blockade
- 1949 - Soviets explode A-bomb
- 1950 - Korean War
- 1951 - Excess profits tax
- 1952 - U.S. steel strike
- 1953 - Soviets explode H-bomb
- 1954 - Dow tops 300, market “too high”
- 1955 - Eisenhower illness
- 1956 - Suez crisis
- 1957 - Soviets launch Sputnik
- 1958 - Recession
- 1959 - Castro seizes power
- 1960 - Soviets down spy plane
- 1961 - Berlin Wall erected
- 1962 - Cuban missile crisis
- 1963 - Kennedy assassinated
- 1964 - Gulf of Tonkin, Vietnam
- 1965 - Civil rights marches
- 1966 - Vietnam war escalates
- 1967 - Newark riots
- 1968 - USS Pueblo seized, Korea
- 1969 - Money supply tightens, market falls
- 1970 - Cambodia invaded, war spreads
- 1971 - Wage/price freeze
- 1972 - Watergate
- 1973 - Oil embargo
- 1974 - Nixon resigns
- 1975 - U.S. withdrawal from Vietnam
- 1976 - New York City blackout/bankruptcy concerns
- 1977 - Energy crisis
- 1978 - Massacres in Cambodia
- 1979 - Three Mile Island disaster
- 1980 - Abscam scandal rocks Congress
- 1981 - U.S. President Ronald Reagan and Pope Jean Paul II shot
- 1982 - Worst recession in 40 years
- 1983 - Soviets shoot down Korean airliner
- 1984 - Iran/Iraq war escalates
- 1985 - U.S. become a debtor nation
- 1986 - Bombing in Libya
- 1987 - Record setting market decline
- 1988 - Bank failures peak
- 1989 - Junk bond crisis
- 1990 - Iraq invades Kuwait
- 1991 - U.S. recession, USSR dissolves
- 1992 - Los Angeles riots
- 1993 - Great flood
- 1994 - Federal Reserve raises rates six times
- 1995 - Dow tops 4,000 then 5,000, market “too high”
- 1996 - Technology stock stumble
- 1997 - Asian financial crisis
- 1998 - Global economic turmoil
- 1999 - Fears of Y2K problem
- 2000 - Internet “bubble” bursts
- 2001 - Terrorist attacks in U.S.
- 2002 - Worst bear market since ’29-32, Enron Tyco, WorldCom
- 2003 - War in Iraq, SARS
- 2004 - Madrid terrorist bombing, Asian tsunami
- 2005 - Terrorist attacks in London, hurricane Katrina
- 2006 - U.S. housing market declines, Iran nuclear program
- 2007 - Subprime mortgage loans
- 2008 - Stock market decline, Bear Stearns bailout, Lehman bankruptcy
- 2009 - Continue stock market decline at start of year, Barack Obama sworn in
- 2010 - Haiti earthquake, U.S. troops withdraw from Iraq
- 2011 - Bin Laden killed, Japan earthquakes
- 2012 - Kim Jong Un appointed Supreme Leader (North Korea tensions)
- 2013 - Boston Bombings, Xi Jinping elected President in China
- 2014 - Ebola epidemic, oil markets crash
- 2015 - Paris attacks, Europe refugee crisis, Greek debt crisis
- 2016 - Brexit, Donald Trump wins U.S. presidential election
- 2017 - Russian interference investigation (Russian tensions), bit coin
- 2018 - U.S. imposes tariffs on China, Conflicts with trade agreements, NAFTA agreement uncertainly
- 2019 - S&P 500 reaches 3,000, yield curve inversion, U.S.-China trade war, Brexit,
- 2020 - COVID-19 Pandemic, fear of getting sick, loved ones dying, anxiety and fear over the unknown
- 2021 - Fear of stagflation, surge in inflation begins,
- 2022 - Government corruption, Russia attacking Ukraine, inflation continues
- 2023 - High inflation, interest rates rising, low bond yields, government debt levels, fear of recession
- 2024 - Israel Palestine conflict, fear of defaults, continued Russia-Ukraine conflict, U.S. election
We have told many people over the decades that the worst thing you can do when there is downturn in the stock market is to panic and sell. In fact, any downward movement in the stock market provides an opportunity for disciplined investors to invest any cash that is currently not invested.
Our wealthiest clients have bought assets (i.e. quality equity holdings and real estate) during these times and maintained their existing holdings for the long-term through all the noise that every year brings.
Kevin Greenard CPA CA FMA CFP CIM is a Senior Wealth Advisor and Portfolio Manager, Wealth Management with The Greenard Group at Scotia Wealth Management in Victoria. His column appears every week at timescolonist.com. Call 250.389.2138, email [email protected], or visit greenardgroup.com.
