Everyone loves when the markets go up. For the past several years, our clients have enjoyed some pretty fantastic markets. The danger is that we start to think that markets only go up. These past several weeks have been a sobering reminder that markets also go down.
Take a moment to consider the following graphic produced by J.P. Morgan. Here we see the performance of the S&P 500 going back 42 years (to 1980). Notice how the market had intra-year declines every year, with an average decline of 14%. In spite of these downturns during the year, 75% of the time the market ended in the green for that calendar year. While past performance does not guarantee future results, it can help guide our thinking and expectations.
Also, consider this chart which shows that market declines of 10% a year are rather normal.
The recent market downturns have been caused by many factors. In part, stock traders have been selling shares to lock in profits. Traders also fear the expected move by the Federal Reserve to raise interest rates in an attempt to tamp down inflation. Then there are the concerns about the saber-rattling of Russia and China.
In the short term, there is no way to know how these and other factors will impact investors. In the long term, we remain convinced that staying invested provides the best possible opportunity for a successful outcome.
Here are a few points to keep in mind when considering market performance over the past few weeks:
- Gains or losses are unrealized – Until an asset is sold, the loss is just on paper. Once sold, losses are locked in.
- Panic is the Enemy – If we allow fear to influence our investing decisions, we may make moves that will later be regretted. Market downturns, like we are currently experiencing, are normal and to be expected. Ten to fifteen percent drops in the market annually are normal.
- Invest if able – Now that valuations have declined, investors with a long-term perspective may want to put excess cash to work in the markets.
Remember to be an encourager and bless others. Keep looking up and keep your confidence in Him who holds our future. Our future is bright and we have much to look forward to.
Please share this with your friends and keep our team in prayer as we focus on building and protecting your (God’s) wealth for years to come.
Roy, Tim, Jeremy, Mark, Steve, Cheryl, and Dave
Securities and Advisory Services offered through Geneos Wealth Management. Member FINRA/SIPC