Eyes on the Yo-Yo or the Hill?
In this video, we discuss bear market statistics (the hill) and intra-year declines (the yo-yo).
VIDEO TRANSCRIPT
Last week the NASDAQ slipped into the bear market territory, with other indices not too far behind. Here’s what it means for your money. So a bear market is defined as a greater than 20% fall from all-time highs. While not every market is technically in a bear market, all are relatively close. In fact, almost one-third of US stocks are down at least 20%, and truthfully, this is relatively normal. Looking at this chart, the orange dot shows each year’s lowest point from all-time highs, and the blue bar shows where the year-end return finished out. We can see that the average peak to trough drawdown in a given year is 13.6%. Now, that’s about where the S&P500 is sitting now, but no year in the stock market is average. I hope data like this gives you some perspective. A well-known financial journalist, alan Abelson once said, “Do you know what investing for the long run but listening to market news every day is like? It’s like a man walking up a big hill with a yo-yo and keeping his eyes fixed on the yo-yo instead of the hill.” So now that we’ve looked at the yo-yo, let’s talk about the hill and bear markets as buying opportunities. First, take a look at the total drawdown in the first column for each of these instances, pretty jarring right? Then, take a look at the amount of time from peak to trough, most are longer than the roughly one-month period we all experienced back in 2020. There is definitely an element of time required for the markets to digest information and find a bottom. But take look at the 1, 3, and 5 years forward returns after the market bottoms. Pretty astounding right? In fact, when you think about it, the broad stock market has never, not went on to make all time new highs again. Not once. So when do you jump in? Well, a bear market is like holding a beach ball underwater, and we believe trying to time the bottom perfectly is a futile pursuit. Last summer I posted to the On Point blog specifically on Market Timing, and I’ll put that in the comments. I hope this data helps give you some perspective & confidence. And why you should your eyes on the hill and not the yo-yo. As always stay the course & stay on point.
BLOG POST REFERENCED: https://www.barnhartwealth.com/blog/market-timing
