MARKET MOVEMENT - UP, DOWN AND SIDEWAYS MARKETS

This month we’ll look at the realities of investing in the stock market and how our views can often change based on recent experience. We often suffer from recency bias, which is the idea that whatever our recent experience is, skews our overall view and historical reality. We have been in a strong bull run with great gains in the market. There have been some bumps along the way such as early last year when Covid first struck, but that faded quickly in the rearview mirror as markets have come back so strongly.

The chart below shows a long-term view that is important to keep in mind. It is the average annualized return of 10.3% from 1926-2020 that would have turned $1 into $10,937 that motivates us to invest for the long run.

As we zoom in over various periods the picture can look much different. Despite a long-term upward trend, information by Capital Group shows us how often markets experience downturns and how severe those downturns can be.

 Another view from JP Morgan shows us that markets tend to run in longer-term cycles of significant growth, and then grind sideways for a significant period.

There is no doubt we’ve experienced a strong move up for over a decade and I hope it continues, however, that trend will change at some point. This is the reason we have to manage how our investments are allocated and hold other assets such as cash, bonds, commodities, real estate, etc. to help wade through the ups and downs that are inevitable. This is especially important when you start withdrawing money from your investments, such as in retirement.

If you’d like to discuss your investment strategy, email me at advisor@blakegallion.com.  

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