I don’t mean to sound like a broken record; however, even with current market uncertainty and bad news, my advice remains consistent and similar to the first six months of 2022: think of the long term and know that we are here to help guide your investing.
The Downturn of the Markets
It might not come as a surprise that June statements are less than stellar. The media has done plenty of reporting on this year’s bad news, from the war in Ukraine and rising inflation to an increase in interest rates.
Through the first half of the year, we have seen the S&P 500 and all of the major indexes go into a bear market (which means a stock loss of 20% or more).We have also seen the year-over-year inflation go over 8%. In many of the past market downturns the Federal Reserve has helped the market by lowering interest rates and providing stimulus for the economy, but so far not this time. In fact, the Federal Reserve has done the opposite and raised rates because of inflation. This has affected bond prices as higher interest-bearing bonds have started to come into the market. All of this has created the perfect storm.
Taking A Long View
With all of these factors working against us, how can we not cash in all of our investments and put them under the mattress? I’m joking of course, but the primary reason is that we have history on our side. We don’t think that this time around will be any different, no matter what the doom and gloom internet expert says. It never feels good when the market goes down. In fact, it feels awful, but we’ve been here before. From 1950 to 2021, the S&P 500 (500 biggest stocks) performance during the worst one-year time period was negative 39%.
However, if you are a long term investor (which all of you should be) the worst 20-year return was an average of +6% per year. Not everyone has a 20-year time frame, but for the most part we will all be invested for the rest of our lives and then our beneficiaries will take over. Please see the chart of these various time periods and see how long-term investors have won. If you're thinking long-term then you’re in good shape.
What are we doing?
While what we are doing varies for each person depending on their situation, a lot of the work was done on the front end. We invest in cash flow heavy positions that are profitable. More recently, we have changed bond positions to floating rate and bond alternatives such as buffered ETF’s. We have taken advantage of commodities. MFG has considered many ideas during our investment committee meetings and we’ve put a number of investments in place that we feel optimistic about.
What else do we need?
One answer is easy: time. As one of my colleagues says, “The more time that I have, the more bullish I get.” Here’s another thought, if you can stomach it (and consult your advisor on risk tolerance since each person’s investing is unique): historically when the market loses 20% it is one of the best times to invest. The idea of buy low and sell high is something we all know, and although it might be scary, when fear is at its highest, it is the best time to invest cash or extra funds on the sideline.
Please see the chart above of each Bear Market since WWII. After that -20% market, the chart shows the 1-year, 3-year, and 6-year later returns. The average return one year later (after a 20% decline) was +17.5% and the average six-year cumulative return was 79%. I know that then was different from now, but the market has recovered in all of those downturns. There are also time periods that didn’t fair as well. We don’t have a crystal ball, but history tells us to keep pressing forward.
Please reach out to discuss any concerns or thoughts that you have. As always, we are here for you.
President, Marshall Financial Group
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