Today’s headlines are stressful. Equity markets are full of hope, having recovered from the most recent bear market. You deserve a vacation—or at least a comforting drink and moment to relax. The recent market movements inside your equity investments were dramatic and rare.
Equities Can be Terrifying
Equities can be terrifying to watch. If you had been looking then you may have, very briefly, felt like a third of your investments disappeared between February and March. And if you acted on that feeling, you would have locked in those losses. Look at what happened during that month to the S&P 500 in the following chart (1)
This is a dramatic 34% decline. The fastest in history. But this chart doesn’t describe what happened next. At the time of writing, the S&P 500 is above 3,200, already very close to the all-time high set on February 19th, 2020, just a few short months ago. The one-month crash is the shortest bear market in history.
Take a look at all of the bear markets since the end of World War 2. What you’ll find is that they don’t last long, but ours was the shortest. I see a different story than the one many people anticipated for years before March 2020: we’re in the longest economic expansion in history. People were afraid of the crash. What if they had known it would only last a month?
You will likely see a different situation when you look at equity markets as opposed to the economic statistics quoted on the various news sources. I see that we had two stock market crashes during the ten-year “expansion without a recession” that caused consternation among the chieftains of economic calamity (1).
The thing holding us back from fantastic financial gains was fear itself.
Today’s Situation and Planning for the Future
Today, we have countless reasons for anger, fear and frustration. They are manifest around our country, and recently we literally had riots in the streets. We can make a difference here, with the government, with our companies, with communities, with our families. Let’s spend our energies where we can make a difference and ignore the equity markets except, of course, in relation to our financial plans.
Our financial plans guide and determine how much of our net worth we invest in equities. We do not allow the market’s behavior to determine whether we visit our grandkids or visit Hawaii, buy a Tesla instead of a Honda, or even eat rice and beans instead of steak. Planning gives us confidence and guides our future.
Every Bear Market Since World War 2
Ultimately, the disasters that befell us in 2020 are not different after all, as we can see in the chart below (1).
(1) Yahoo Finance, accessed on June 9, 2020