With the stock market decline to start the week, the broader S&P 500 Index has moved into correction territory. For those of you who don't speak Wall Street, that is a 10% decline from the recent high. Just like the new Scream movie (the fifth installment in the series) that was recently released, I want to offer you my version of a sequel to a past article. As Mark Twain so famously said, "History doesn't repeat itself, but it often rhymes." This axiom holds true for Hollywood as well as the stock market and therefore, here is the updated Misery Loves Company (my long-term clients may notice major similarities to the original from 2020: Misery Loves Company):
Given the abundance of "news" available today, I am sure you heard the stock market has declined more than 10% from recent highs over fears related to inflation, Russia, the ongoing pandemic and of course economic growth. Nobody knows how far this fear will extend or how much stocks will fall in response. A drop of this level is known as a market correction which sounds harmless but is nonetheless painful to experience.
To put this in context, see the table from First Trust which highlights the frequency of similar market downturns of both the S&P 500 and Dow Jones Industrial Average Indexes. The table looks back to 1928 and as you can see, such downturns are a normal part of stock investing happening 1-2 times per year on average over the more than 90 years studied.
If you follow your account closely, you may have noticed that we have used this decline to rebalance, selling safe-haven assets to reallocate to the stocks that are suddenly 10% cheaper than they were recently. As John Maynard Keynes once wrote, "Patience is a luxury that individual investors can afford." The decision to reallocate may not look good in the next 3-6 months if the decline continues, but if history is any indication, it may look very good over the next 3-6 years.
The late John Bogle, founder of The Vanguard Group, said the question isn't whether your investments will go up and down in value, because this will inevitably happen. Rather, he said, the question is, will the fact that investments go up and down bother me enough to do something dumb? If you would like to read more about market declines, you may also want to take a look at my piece titled, "The Importance of the Long Run" which I published during the downturn in late 2018.
Remember, I am here to help you stay the course with the long-term investment strategies we developed together. The market has downturns which are really the price we pay for long-term returns. This isn't the first one we've seen and certainly won't be the last. I am happy to answer the tough questions and help you make the right decisions for your long-term success. As you know, I invest alongside you and I would encourage you to give me a call whenever you would like to commiserate. After all, misery loves company, again.
If you have questions or if you would like to discuss the markets with me, you can email me at:
firstname.lastname@example.org or call (520) 204-1058.
Matt Haertzen, CFA, CFP