If you recall, a lot of these shocks were “This Time It’s Different” events in the eyes of investors (and so-called market experts). In some cases, the event was going to fundamentally alter the world as we knew it and/or so badly damage our financial systems, we’d never be able to recover from it.
Remember the sheer panic feelings during The Dot Com Bust, September 11th, The 2008 Financial Crisis or in the throes of the COVID Pandemic? I sure do because I’m human too and felt those feelings too. I am in no way minimizing the seriousness of those crises. It’s perfectly normal to have those feelings, where you get yourself into trouble is when you act on those feelings.
Today, with the stability of the world’s financial system in question, high inflation, war in Ukraine, China threatening Taiwan and what looks to be the most highly politicized presidential election in our history coming up, we have plenty of things to keep us up at night.
I don’t know if we put in a bear-market bottom last October but with the S&P500 around 4,100 as of this writing, it is up a little more than 16%. Time will tell if it holds. What I do know is for us long-term, goal focused investors the biggest risk is not being in the next 20% leg down…. it’s being out of the next 100% leg up. If you recall, for the vast majority of you we have a solid plan that has been tested against these scenarios and your probability of success remains high. As always, the largest variable to your plan is your own emotions.
Take a look at this next chart. It vividly illustrates the effect of what missing out on the best market days over the last 25 years can have on the long-term annualized returns of equities:
