In a May article by Kevin Mahn, he analyzed the first 100 trading days of 2020. Of those 100 days, 53% have been “up days” while 47% of them have been “down days.”
The world has been topsy-turvy, to say the least, and the market reacts. Whether the market swings up or swings down, hearing panicked cable news experts and the echo chamber of our social media feeds can make stock market volatility seem much worse than it actually is.
Clear your head of all the noise and consider these three key points about market history and the true purpose of your financial plan.
1. Stock market declines are normal and expected.
In March 2009, the US markets finally bottomed out at the end of the Great Recession. Since then, investors have enjoyed a nine-year bull market, by some measures the longest ever.
You might suspect that after such historic growth, what goes up was bound to come down. Market history tells us that’s exactly the case. In fact, according to this chart from Capital Research and Management Company, we’re slightly overdue for the approximately 20% market decline.
Some of us have a bias that favors recent events over historic ones. It can convince you that this downturn is different, because our current social, political and geo-political environment is amplified. I invite you to think about some of the things that have happened since the beginning of this chart in 1948:
- Recovery after World War II
- Tumult of the 1960s, culminating in the Kennedy assassinations and Vietnam
- Gas shortages in the 1970s
- Black Monday market crash in 1987
- Two major wars in the Middle East and other military engagements
- Multiple natural disasters
- Lehman Bros. bankruptcy
- Housing crisis in 2008
Through all these events, and many more, the market experienced short-term declines. Viewed through a wider lens, the long-term trajectory of the stock market has continued to point upward, no matter what the world and panicky investors throw at it.
2. You’re planning for tomorrow, not today.
The people who are most affected by today’s stock market numbers are people who make a living buying and selling stocks every day. These traders are operating on a timeframe that’s much narrower and much more volatile than the investments in your retirement portfolio.
Take the 1987 market crash as an example. Many day traders lost their shirts on Black Monday. But just 23 months later, the market was back at its previous breakeven point. Now, of course, those 23 months were nervous times, especially for folks who were nearing retirement. Again, viewed over the course of a typical 30-year retirement savings program, these kinds of normal market corrections are typically minor blips.
3. A return on investment is less important than a life well-lived.
There’s more to you than your money and your investments… just ask your family.
Real meaning in life comes from focusing on all the things money can’t buy. If you spend your entire working life chasing after the next dollar, money is all you’ll have in retirement. You won’t have a network of personal relationships to enjoy. You won’t have a connection to your community and local causes that improve it. You won’t have a personal routine that keeps you healthy, active, and engaged. You won’t have hobbies that put your skills and interests to their highest uses. You won’t have faith in things beyond this world.
Fretting about normal market volatility only leads to bad financial decisions and a distorted view of what your money is really for.
The sooner you focus on living the best life possible with the money you have, the less you’ll focus on the ups and downs of the market. Working with a trusted advisor and having a financial life plan that changes WITH you will deliver something more important than money — a happy, secure, and fulfilling life.