Dennis Burns, Private Client Advisor, Commerce Trust
During periods of economic transition and high stock market volatility, investors wantpeace of mind when it comes to their financial wellbeing. However, a steady drumbeat of unsettling business news and scary financial statements can rattle even the most seasoned investors. Staying focused on long-term investment goals can help give you the confidence to navigate through turbulent market conditions.
History provides some perspective. Here are four themes to demonstrate how the stock market – as represented by the S&P 500 Index – has continued a long-term upward trend, even following the most uncertain market settings.
STAY THE COURSE
Through bull and bear markets, through recessions and wars, investing opportunities tend to reward patient investors. Since 1925, the S&P 500 Index has produced a 10.1% compound annual return. So, a hypothetical $1 investment in stocks made in 1925 would have a value exceeding $11,000 today despite all the declines the market has experienced in nearly 100 years (see chart.)
Think about what occurred over that timeframe: The Market Crash of 1929 and Great Depression, World War II, the 1973 oil crisis, Black Monday in 1987, the dot.com bubble in the early 2000s, the subprime mortgage crisis of 2007 and most recently, the COVID-19 pandemic. It’s highly likely investors experienced feelings of uneasiness during these periods just as we might today.
** Chart: Value of $1 invested in the S&P 500 Index (12/31/1925 – 12/31/2022)**
TIME IN THE MARKET
Some people believe investing is a matter of timing. As the saying goes, “Buy low, sell high.” But there’s a problem with this mindset: Even the smartest investment professionals can’t accurately predict the exact timing of market moves.
Success with a long-term investment strategy is more likely the result of a consistent approach, based on time in the market — not market timing. For example, selling when markets decline can put you on the sidelines when stocks change direction. Turnarounds often happen quickly and typically are strong during the early stages.
BULLS FOLLOW BEARS
A bear market is defined as a decline of 20% or more of a major stock market index for a sustained period. This can lead to widespread pessimism and negative investor sentiment. However, these conditions don’t last forever. In fact, the most memorable bear markets over the past 35 years all produced double-digit returns within 12 months from when the market hit bottom.
Something to keep in mind: the longest bull market in U.S. stock market history lasted nearly 11 years from 2009 until the pandemic ended it in 2020. Being a patient and committed investor through short-term downturns could lead to positive returns on your investments over the long haul.
PERSPECTIVE AND RESILIENCE
Working with a financial professional, there are actions investors can take during turbulent markets. A diversified portfolio may help smooth returns when certain areas of the market are underperforming. Periodically rebalancing a portfolio during extended periods of market stress may present buying opportunities. In addition, taking the steps to de-risk a portfolio during downturns may reduce exposure to more volatile asset classes. A diversified portfolio invested in quality investments will allow the opportunity to not miss out when the market recovery begins.
Another important consideration is to remember your investment timeline probably extends beyond next week or next year. The time horizon to retirement could be even five, 10 or even 20 years for some investors.
Remember these key concepts:
- Follow a solid investing strategy rather than emotion.
- Don’t let a short-term reaction overtake long-term plans.
- Invest regularly and stay committed to your goals.
- Work closely with a financial advisor to consider all investment options.
Past performance is no guarantee of future results, and the opinions and other information in the commentary are as of April 14, 2023. This summary is intended to provide general information only and is reflective of the opinions of Commerce Trust. This material is not a recommendation of any particular security, is not based on any particular financial situation or need and is not intended to replace the advice of a qualified attorney, tax advisor or investment professional.
Diversification does not guarantee a profit or protect against all risk. Commerce Trust does not provide tax advice or legal advice to customers. Consult a tax specialist regarding tax implications related to any product and specific financial situation. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.
Commerce Trust is a division of Commerce Bank.
Investment Products: Not FDIC Insured | May Lose Value | No Bank Guarantee