There are a number of different measurement indices that are used to measure the direction of the investment world. One of the broadest indices is the S&P 500, which is a weighted average of 500 stocks.
The S&P does not contain 500 equal slices of the pie. Technology stocks make up the largest sector of the index, while utilities make up the smallest sector. Hence the weighted designation.
On June 13, the S&P 500 Index was down 20 percent from its peak.
That put us in bear market territory. Bear markets are nothing new in the investment world. You should never be shocked or overreact when we walk into one.
The most recent bear market began in February 2020 when the index fell 33 percent. Coincidentally, it only lasted 33 days. Going back further, in March 2000 it fell 49 percent and lasted 929 days. And in October 2007 we had a 517 day bear market that fell 56 percent
There is never a certainty that history will repeat itself, but historically we have weathered every bear market. We have always crawled from the deep and reached new heights.
It may sound tempting to sit out bear markets; sell everything and buy back when it is “safe”. But it is almost impossible to time the financial markets. In most cases, investors who try are whipped; They end up selling low and buying high.
In reality, no investments are ever truly secure. As with any aspect of daily life, anything can happen at any time. You may endeavor to position your investments in what you deem prudent and conservative. But this belief is not a guarantee of security. Not in this world. Simply put, all investors carry some risk.
Ultimately, most long-term investors are best served by being diversified across different sectors and having sufficient cash reserves to weather economic storms.
Our Federal Reserve is aggressively raising interest rates to keep inflation in check. Some fear these moves will plunge the nation into recession. Many economists believe that the best we can hope for is a soft landing. But whether it’s a soft landing or a full-blown recession, I remain optimistic that investors who manage their emotions will ultimately be rewarded for their patience.
Keep in mind that the economy and stocks don’t always move in the same direction or at the same speed. I cannot predict whether this downturn will last three days or three years. But I’m confident that innovative companies will find ways to be profitable and ultimately help get the economy back on track. This means that we will see a bull market again.
Investors should regularly review their investment strategies and objectives and understand that a complete abandonment is not a strategy. It’s panic. This is an ever-changing world that’s getting more expensive by the minute. Panic is seldom a solution to any problem in life, especially in the financial world.
Our nation has a long history of overcoming everything from military conflicts to economic turmoil. As we celebrate the Fourth of July holiday, remember that America is resilient and remains the envy of the world. If we hit a recession, be patient. The economy will eventually recover and the bulls will rumble home.
Email your questions to kenmorris@lifetimeplanning.com
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The opinions expressed in this comment are those of the author and do not necessarily reflect the opinions of Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to constitute specific investment advice or a recommendation for any individual. It is recommended that you consult your financial professional, solicitor or accountant regarding your individual situation. Comments on past performance are not intended as forward-looking statements and should not be taken as an indication of future results.