The last time the stock market had such a terrible January-through-June performance, I was in junior high. The year was 1970.
For me, that was a time of pimples, polyester clothes, bad hair, trying to impress girls, and Mrs. Lawrence’s English class. All not-so-fun experiences—a lot like investing is for most people right now.
For millennials and generations X and Y, this is the first experience with rampant inflation. Rising prices have been followed by the Federal Reserve’s predictable response of raising interest rates. Even our booming stock market couldn’t survive this one-two punch.
The bond market has repriced itself. Bond prices this year are down over 10% in the U.S.
Since higher interest rates tend to dampen corporate profits, and since inflation typically causes consumers to spend less, the equity markets have been spooked too. They’re down over 20% in the first six months of 2022 (as measured by the S&P 500 index).
The only solace I can offer? If you’re like most readers of this column, you didn’t buy into Bitcoin hook, line, and sinker. That cryptocurrency is down over 60% this year!
Back to junior high. Eventually, the pimples, polyester, and greasy hair went away. (The hair eventually went completely away). My awkwardness with the opposite sex also diminished once I stopped looking at my shoes and started looking girls in the eye.
As far as, Mrs. Lawrence’s English class, I hated it! It was hard, and most junior high boys don’t like hard things.
Today, however, I will rise up and call that woman blessed. By the time I finished 7th and 8th grade English, I was a grammar ninja. I could diagram a sentence, conjugate a verb, and spot a dangling participle at 50 paces blindfolded.
Here’s my point: Investing right now is a lot like being in Mrs. Lawrence’s class. It isn’t fun. Living through a bear market is agonizing. We just want it to be over.
I would remind you—whatever generation you belong to—that this is not the first time markets have tumbled into bear territory.
I don’t own a crystal ball, and my predictive abilities aren’t worth much. But I can read history.
According to the Wall Street Journal, we’ve had a dozen bear markets since 1950. In every case (excluding our current situation), the market has recovered its losses and gone on to new highs. The only question is…how long does it take?
Here’s what history shows: In nine of the twelve bear markets, average investors have recovered their losses in one year or less. Not only this, but the median return one year later was over 20%.
I have written in this space that bear markets are the economy’s way of “pruning” itself. Weak and/or weedy entities get “pulled.” They don’t make it. And even healthy entities get “cut back.” This is how the strong get stronger and become more fruitful. It is a painful, but necessary process.
Kind of like junior high.
Both require time and patience.
So here’s to persevering, and to the confident hope that the future will be brighter.
To help you think through such issues, I’ve created a comprehensive checklist of pre-retirement questions for people who are 60-something. It’s free if you’d like a copy. Email me at firstname.lastname@example.org, and I’ll send it to you right away.
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