Back in December I posted 20 Risks to the market in 2020 on LinkedIn and I said that back to back decades without a recession is unlikely. The risk of Coronavirus was not on that list. My point is risk can come from unexpected places at any time. It is not the first time a “black swan” event has happened in the stock market and will most likely not be the last.
In the past, the market goes from all-time high to bear market territory in 255 days on average. The recent -20% decline from all-time highs took 16 trading sessions. Before this decline, the fastest bear market was in 1929 in 36 sessions. The S&P 500 is -31.93% from the high as of the market close on 3/20/2020. The Great Recession was the most recent recession (2007-2009), and for comparison the S&P 500 closed -56.48% from the highs. The current market decline was quicker than in the past because the potential of a temporary economic halt.
As an investor it is important to stick to your plan during these difficult times. Timing the bottom of the market is impossible. Many people say, “I’ll sell everything now and buy back when the dust settles”. By time the “dust settles” the market will have priced that in and rebounded from the lows and you would have missed the upside. For investors that are young, time in the market is more important than timing the market. If you are near retirement or in retirement that approach may not be suitable for you. As you get older, it is important to reduce your risk. This depends on many different factors including age, risk tolerance, and cash flow needs.
On average the market has bounced back after period of sharp declines as seen below. It does not happen overnight and sometimes it gets worse before it gets better.
What should you own in your portfolio? That depends on your personal situation. It includes several factors including time horizon, risk tolerance, and cash flow needs. If you would like to discuss your personal situation, email me at firstname.lastname@example.org or call 847-550-6100.
Black Swan is an unpredictable event that is beyond what normally expected of a situation and has potentially severe consequences.
Market represented by the S&P 500 index
Bear Market is when an index closes at least 20% down from previous high
Chart from @michaelbatnick on Twitter
All investing involves risks including loss of principal. No strategy assures success or protects against loss. Please consult your financial advisor regarding your specific situation. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual