If you have been tuned in to the U.S. Stock Market recently you’ll notice that it has experienced a correction of -10% from the high water mark achieved in late September 2018. We have returned to December 2017 highs, effectively wiping out 12 months worth of “growth”. The last time we saw this was 2015, when the entire year of 2015 was also lost and didn’t surpass it’s January 1st, 2015 levels until April 2016 (or 16 months).
Contrary to what one may think, the time period of 1999 to 2003 (Tech Bubble & 9/11) was the worst in recent memory. During this Bear Market many investors would have experienced approximately 52 months (or 4 years, 4 months) of no growth. The Great Recession (2007 – 2009) was the second worst, investors experienced approximately 36 months (or 3 years) of no growth.
It is times like these when it’s important to reflect upon your financial goals, and the goals of your investment portfolio. How are your investments allocated? Are they allocated in line with your risk tolerance? Are you diversified properly? Are you prepared to wait another 5 months for your portfolio to return to it’s January 2018 value? Are you prepared to wait another 40 months? Are you comfortable if your investments dropped further from where it’s value stands now? If yes, what’s that number (-5%, -10%, -15%)?
If you are in your retirement years, and you are in your distribution phase, drawing down from your investment portfolio to cover living expenses, are you prepared? Can you reduce your expenses? How much can you reduce them? Can you reduce your expenses long enough for your portfolio to recover? Understanding that as your investments are in a recovery phase, they must work considerably harder as you are drawing from them.
Right now, forecasters are looking into their crystal balls and reading the tea leaves for us. In reality, nobody knows what will happen. The only prudent thing to do is reassess and question your own personal financial goals. Understanding that you cannot remove all risk; even having money in cash is a risk (inflation risk). Proper diversification is king. I am not a believer that history repeats itself, but I do believe that it rhymes. Knowing this, I am prepared for all outcomes and understand that time is the key factor in investing success.
Jeff Bezos asked Warren Buffett: “Warren, your process is so simple & clearly works. Why doesn’t everyone just copy you?”Warren responds: “Because nobody wants to get rich slow.”