Marijoyce Ryan, BridgeTower Media Newswires
For the last several months, the most-asked question from clients has to do with when we think the market will experience a correction or bear market. After a prolonged period of time with a strong market, investors are beginning to wonder how long it will last.
Investors need to have exposure to a diversified stock portfolio to provide asset growth and to stay ahead of inflation. Based on your age, time horizon, total assets, goals and comfort, varying levels of stock can be utilized. To enjoy the long term gains, you must be willing to accept market pull backs.
Since 1950, the S&P 500 has experienced 54 positive years and 14 negative years. This means that 79% of the time the market has been positive and only 21% negative. The average return in the positive years has been 19.15% and the average negative returns were -12.53%. The current bull market, which began in March 2009, has produced a cumulative return of about 300%, or 19.7% on an average annualized basis.
It sounds easy enough to say that you are willing to live through downturns to achieve long-term growth. However, when downturns occur, logic is all too frequently replaced by emotion. It can be difficult to watch your assets decrease in value. What should an investor do?
If you have an appropriate mix of stocks and bonds, the best advice is to stay the course. Trying to time the market (going to cash, or drastically decreasing your exposure to stocks after the market has already gone down) is a loser’s game. Investing is not about timing, but patience. Over longer periods of time, the market recovers from downturns and continues to grow. During downturns and volatile periods of time, the market can experience some of its single best (up) days. If you miss more than a few of the best days in the market it can have a profound impact on value of your assets over time.
What is the cost of missing the single best days? Consider this—here are numbers—based on the S&P 500 over 30 years:
If You Miss the Best Days Loss to Your Portfolio
One Day -10.4%
Five Days -35.2%
10 Days -51.7%
Making emotionally based changes to your portfolio can result in significantly lower returns that you may not be able to make up. Downturns provide opportunities to invest and/or reinvest at lower prices. Market rebounds tend to occur quickly and can be quite dramatic. If you are not invested through the downturn, you will not participate in the rebound.
Here is some advice to remember:
Focus on having the right mix of stocks and bonds for your circumstances. The right balance should be able to successfully get you through full market cycles—both down and up.
Try to not look at your portfolio daily….check it quarterly or other regular intervals. And keep a distance from the ongoing hour-by-hour news about the market.
Consider investing through the downturn—whether it is via your 401K plan or another mechanism. This is how smart investors create wealth.
Seek the help of a professional investment advisor. A solid advisor will assist in setting the right mix of stocks and bonds and will make adjustments to your portfolio as needed to accommodate the changing investment landscape.
So, is the current bull market about to end? No one can tell. While this continues to be the second-longest bull market in history, it could continue for another year or two. What we do know is that valuations are high. Being a disciplined manager, we have reduced risk in our clients’ equity portfolios. This reduction in risk protects assets during difficult markets.
The old saying “it is not about timing the market but time in the market” is very true. The markets are complex and dynamic—and out of our control. So, control your emotions and be disciplined.
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Marijoyce Ryan, CPP, is vice president of fiduciary services for Karpus Investment Management, a local independent, registered investment advisor managing assets for individuals, corporations, non-profits and trustees. Offices are located at 183 Sully’s Trail, Pittsford, NY 14534, (585) 586-4680.
