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April 15, 2020

Market Comment

By Joel Malick, Strategic Financial Partners

I’m pretty sure we’ve been in quarantine too long because now we’re constructing our own graphs! We have two things to share with you. The first is a long-standing visual that JP Morgan provides each year. It uses the S&P 500 as a proxy to illustrate how impactful missing just a few of the best days over the last 20 years could be. As you’ll see below, missing the 10 best days would have meant a nearly two-thirds reduction in return for the time beginning January 4, 1999 and ending December 31, 2018. Missing the best 20 days resulted in the return over two full decades being negative.


 
The second is the graph we constructed. One interesting observation about bear markets is they have many good days along the way. We generally think the market goes down for a while and then collects itself emotionally at the bottom. We assume it gives everyone a breather and some time to reflect on where things stand…and then resumes its upward climb. This couldn’t be farther from the truth.

The best days almost always follow very closely to the worst days. We went back to February 19, 2020 (the day the music died ) and graphed each day’s percentage change in the markets¹ since. It’s almost unreal to see the percentage change each day. Yes, those are days, not years! We took the additional step of boxing in the really bad days that were immediately followed by the really good ones.


 
Try timing that! Now, we know you are good long-term investors and we are pleased to share that we’ve not had a single client change abrupt course due to the market madness. But we are all human. Perhaps we all are asking ourselves the following questions:

  • Should I get out?
  • Should I go to the sidelines for just a bit until things settle down?
  • Why do the so-called “experts” say things on TV like “we’re going to cash”?
  • If they can do it, it must be good right? I mean, I can get back in later once the dust has settled, can’t I?

Here are a few things we know from experience that help to address these mental debates:

  1. The market and the economy will recover, they always do. We don’t have a single instance to reference where they haven’t. Not one.
  2. When a market recovery begins it will be well out ahead of any good news so you can’t wait until it “feels” safe, which makes market timing that much more impossible. We tell people, “if you want to time the market and you get out when you feel bad, you have to get back in when you feel terrible.”
  3. We generally experience a downturn on average every 6 years². If you succumb to your fears, you will need to be right twice in each bear market (when to get out and when to get back in). If you are 50-60 years old, you could have 5-6 bear markets ahead of you and you’ll need to be 100% right 10-12 times over the next 40 years. All the historical data shows this is a losing proposition.
  4. The great days are always near the bad ones. If you miss the few great days, your overall average return long-term is destined to be poor.
  5. Some “experts” referenced in articles or positioned on TV say they are timing the markets. These experts are generally mutual fund or hedge fund managers and their job is to do just that. Their goals are in stark contrast to yours. A manager of this type normally receives their bonus based on performance for a quarter or a year. There are no bonus programs we’re aware of that are designed to incent long-term performance; it’s all short-term. They either outperform and get a bonus or they don’t.
  6. Assuming your allocation matches your time horizon, and you own a well-managed and high-quality diversified portfolio, then doing nothing wins over the long run and has far fewer potential pitfalls along the way. This may be the only time in your life you’ve been told to do nothing as the best option. Enjoy it!
  7. You will question yourself during the bad times. This is normal. It doesn’t matter. Ignore it and remain steadfast.

We hope these observations prove useful as we all fight daily for perspective.

Regards,

Joel D. Malick AIF® AWMA®
Strategic Financial Partners
Registered Representative/Investment Advisory Representative, Securian Financial Services, Inc., Securities Dealer, Member FINRA/SIPC, A Registered Investment Advisor. Strategic Financial Partners is independently owned and operated. CA insurance license number: 0E42461

This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding any funds or stocks in particular, nor should it be construed as a recommendation to purchase or sell a security. Past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. 3023837 DOFU 04/2020

1-Yahoo Finance Historical Data, ticker ^GSPC Feb 19th to April 3rd
2-https://www.fidelity.com/viewpoints/market-and-economic-insights/bear-markets-the-business-cycle-explained

 

Joel Malick currently maintains the Accredited Investment Fiduciary (AIF®) and Accredited Wealth Management Advisor (AWMA®) designations. Joel and his team at Strategic Financial Partners recognize that running this race for the long term is one of the greatest challenges you’ll face in your lifetime. Thus, they combine critical planning and investment strategies with real-life perspectives. Their consultation is provided at no additional cost to 403(b) Alliance Retirement Plan participants.


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