The stock market has recently been acting like that old saying about the weather, “if you don’t like it today, just wait for tomorrow.”
The past few months have been very bumpy in the stock market. Down big one day, up big the next, rinse and repeat.
With this bumpiness, we thought it would be a good idea to kick off the 2019 edition of Keen on Retirement by discussing the current state of the markets, how today’s volatility compares to historical norms, and how our planning process helps clients stay on course through turbulent stretches.
Listen to the Episode
Simply "click" or "tap" on the "play" icon in the image below to listen to the episode. If you'd like to subscribe to the podcast using an Apple product (iPhone, iPad, iPod touch) click here to learn how. If you use an Android phone, we recommend using the Podcast Addict App, which can be downloaded here.
1. Yes, this really is normal!
OK, I know I’ve made this point more than once in the last couple months. But that’s only because anyone who’s judging this market correction based on cable news and social media might think we’re in the middle of an unprecedented decline. However, that’s just not the case.
If 2018 felt especially volatile, that’s partly because 2017 wasn’t. In 2017, the market moved plus or minus 1% in a day only eight times. Whereas, in 2018, there were 62 such movements. This increase might seem alarming, however, the number of movements in 2018 is actually only slightly higher than the overall historical average of 59. What we’re experiencing in the markets now is simply the market normalizing.
Even a seemingly huge point drop in the Dow or S&P 500 can be considered normal when viewed through this lens. If, hypothetically, the Dow is at 25,000, a 1% drop would then equal 250 points. Thirty years ago, when the Dow was around 2,000, a 250-point drop would have meant a 12.5% loss! Today’s gains and losses are almost always considered to be the “biggest ever” because the markets continue to grow. Big numbers might make for better headlines, but the percentages behind those numbers are far more relevant to your investments.
In fact, what really was unprecedented was the bull market that started at the end of the Great Recession in March of 2009. We said as much last year in our 2018 forecast, and, we also advised folks to prepare for corrections in the near future.
You have to remember that volatility is a feature of investing in the markets, not a flaw, and not necessarily an alarm bell. Market corrections help to reduce speculation and help reset investor expectations to levels that tend to be better suited for long-term positive results. While these adjustments can create short-term losses, they can also be helpful in the long run for patient investors.
2. Time is on your side.
And remember: you’re in this for the long run!
That’s why we consistently advise clients against risky market-timing strategies or knee-jerk moves based on what’s happening in the market right now. Our strategy of diversification, quantitative stock analysis, periodic adjustments, and short-term cash buckets is designed to help generate wealth for you and your family over decades, not days.
Time can play strange tricks on us when we’re thinking about our investments. Bull markets seem to fly by, while bear markets seem to last forever. But market history tells us that the reverse is actually true! Since the Great Depression, the average bull market has lasted 9 years. Whereas the average bear market has lasted 1.4 years (1).
Now I’m not predicting a year-long bear market. I’m just pointing out that the long-term reality of how our investments are working tends to be very different than the short-term perspective of the daily news cycle.
So instead of looking at the market purely through the lens of the trade war with China, the government shutdown, the Federal Reserve raising interest rates, and slightly lower corporate earnings forecasts, let’s widen our timeline a bit.
Go back to 2008. Lehman Bros. had just filed for bankruptcy, the housing market had collapsed, and a great deal of our financial system was effectively frozen. If you’d started investing in January of 2008 and weathered the storm through March 2009, your annualized return today would be around 9% (2).
Let’s widen out a little more. What if you’d started investing in early 1987 and stayed the course through Black Monday that October? Today, your annualized return would be about 9.4% (3).
Although there are no guarantees, we don’t see any reason why future long-term returns can’t be in the same ballpark as past returns.
3. Keep things in perspective.
When volatility hits the markets, one helpful exercise might be to step back and ask yourself: Why am I investing in the first place? What are these investments for? What am I trying to accomplish? What kind of a life do I want for my family? What kind of life do I want for myself in retirement?
Working with a fiduciary advisor to answer these questions and put your money to work for you is what financial planning is all about. While more short-term volatility is possible as the markets continue to adjust to political and economic events, we strongly believe that sticking with your diversified portfolio of stocks, bonds, and reserve cash is still the best way to help you grow your assets.
So, before you let some bad headlines throw off your financial goals for 2019, make an appointment to visit Keen Wealth. We understand that moments like these can be very stressful and emotional, especially if you’re nearing retirement age. We’re always happy to talk through your questions and concerns. Sources
Please share this page and the podcast with your friends and colleagues via Linkedin, Twitter and Facebook. You can use the share buttons. Thanks! Got a question or comment? Email it to me and we'll get back to you or call our office at (913) 624-1841.
Bill Keen is a CHARTERED RETIREMENT PLANNING COUNSELOR℠ and independent financial advisor with more than 25 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he specializes in providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
KWMG, LLC’s dba Keen Wealth Advisors (“company”) is an SEC Registered Investment Advisor located in Overland Park, KS. The company and its representatives may only conduct business in those states where registered or where excluded/exempt or from licensure. For registration information please contact the SEC or the state securities regulators for the states where the company is notice filed. A copy of the company ADV is available upon request. Advisory services are only offered to clients or prospective clients where the company and its representatives are properly licensed or exempt from licensure. No advice may be rendered by the company unless a client service agreement is in place. This information is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy and is for illustrative purposes only. Clients and prospective clients must consider all relevant risk factors involved with each strategy, including costs or fees, and their own personal financial situations before trading.
The views outlined in the book, Keen on Retirement Engineering the Second Half of Your Life, are those of the author and should not be construed as individualized or personalized investment advice. Any economic and/or performance information cited is historical and not indicative of future results. Economic forecasts set forth may not develop as predicted.
The Amazon Best Seller ranking listed on marketing materials is specifically referring to Best Seller rankings for the Kindle Top 100 Paid Lists under the subcategories of: Budgeting and Financial Risk Management, based on data as of September 5, 2019. Amazon rankings although relevant on how a product is selling overall doesn’t necessarily indicate how well an item is selling among other similar items or similar item categories. Amazon may choose the most popular categories or subcategories within which an item has a high ranking to determine its best seller rankings. These rankings are updated hourly and as a result, should be expected to fluctuate as such. Keen Wealth Advisors and Amazon are not affiliated entities.
The Steve Sanduski Advisor Network, Belay Advisor, LLC and other third-party contributors to our blogs and podcasts are not affiliated with Keen Wealth Advisors.
For additional details on Keen Wealth Advisors, please visit https://www.keenwealthadvisors.com/important-disclosures.