The most commonly used benchmark in the world has doubled since its pandemic low. We had our fastest crash and recovery since the Great Depression. This was another reminder that investing during a bear market can be lucrative.
What we can learn from the rebound..
Don’t time the market
Market timing requires you to make two good decisions; when to sell and when to buy back in. It is common for investors to jump in and out of the market when emotions are running high. This can be a recipe for disaster in most cases.
When the market is falling it feels safer to sell. Although markets have recovered from every bear market in history, people could be selling for a variety of reasons. You may want to sell because the volatility, election, pandemic, interest rates, etc. If 2020 taught us anything, trying to time the market based on the latest headline or “market forecast” can be costly.
Take appropriate risk
Risk means different things to investors depending on what stage of life they’re in. For younger individuals, being overly conservative with your money can be risky. However, that is the opposite when it comes to older individuals. Being overly aggressive is risky when there is less time to recover from bear markets.
As an investor, you want to make sure you have a financial plan that takes the appropriate amount of risk based on your circumstances. If your risk profile or time horizon changes, then your portfolio should be adjusted. Otherwise, it’s best to stick to your financial plan and not stress the day-to-day market movements.
Never bet against America
Corporate America is filled with intelligent leaders who find ways to strengthen and grow their companies when faced with adversity. The people who make it to the top of the largest publicly traded companies are there for a reason. During the pandemic, these business leaders took the opportunity to remake their company by adapting and innovating.
Short of owning your own business, stocks are the easiest way to invest in the business world. Historically, many long-term investors have made significant gains. It is not wise to bet against capitalism in American.
Our takeaway
This is not the first time we have seen a quick rebound following a bear market. Before the Covid-19 sell off, we witnessed the Global Financial Crisis (2007-2009). The current recovery has looked similar to the previous bear market (See here). Since then, the market is up +740%.
It’s almost guaranteed that there will be more bear markets in the future. When that happens, there will be people who feed off your fear and uncertainty to gain your attention. You will have to avoid the noise and remember the odds are in your favor when investing for the long term. Every market downturn throughout history has been an incredible buying opportunity.
George Maroudas
847-550-6100
george@pmgwealth.com
Twitter @ChicagoAdvisor
Definitions:
S&P 500 Index: is a market capitalization-weighted index of the 500 largest publicly traded companies in the U.S.
Bear Market: when a market experiences prolonger price decline. Typically describes when prices fall by 20% or more.
Disclaimers and Sources:
Chart data from www.ycharts.com . Market represented by S&P 500 index total return (including dividends) as of 7/27/21.
Opinion are my own. Stock investing includes risks, including fluctuating prices and loss or principal. This information is not intended to provide specific advice or recommendations about any stock nor is it intended to be a recommendation to buy, sell or hold any stock investment. We suggest speaking with your financial professional about your situation prior to investing.
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. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. All investing involves risk including loss of principal. No strategy ensures success or protects against loss. This information is not intended to be a substitute for specific individualized tax advice. The Standard & Poor’s Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
Investments in real estate may be subject to a higher degree of marker risk because of concentration in a specific industry, sector, or geographical sector. Other risks can include, but are not limited to, declines in the value of real estate, potential illiquidity, risks related to general and economic conditions, stage of development, and defaults by borrower. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. Treasury Inflation-Protected Securities, or TIPS, are subject to market risk and significant interest rate risk as their longer duration makes them more sensitive to price declines associated with higher interest rates.
