As the market volatility continues, calls and questions keep rolling in. Thank you for placing your trust in me during this time. As a Financial Advisor, recessions and bear markets are kind of like my Super Bowl. Please don't read that as though I'm enjoying this madness (trust me - I'm not!); I just mean that being an Advisor in a bull market (when investments are going up) is much different from when it's in a bear market (when investments are going down). Decisions made during this time will have a tremendous impact on your long-term retirement outlook! And when you're in the business of giving advice, that's a pretty big deal. As such, I'm working diligently to answer each of your inquiries and provide guidance as best as I can. That said, the question I'm receiving the most over the past week goes something like this:
Should I keep investing, or stop my automatic contributions for a while? Why would I keep buying during this crisis? Shouldn't we wait until the market recovers?
With the S&P 500 down roughly 30% year-to-date, this is an understandable question. But as Nick Maggiulli at Of Dollars and Data points out, buying during a crisis creates a tremendous upside for investors.
I have no idea when the virus will subside or when the market will bottom out. But here's what I believe:
- Over the long-term, I will always be an optimist
- Things will eventually get better
- At some point in the future, the market will be higher than it is today
- In order to benefit from the above, you need to be invested in the market!
As far as when that will happen, your guess is as good as mine. And here is where Nick's post is so great: based upon your own personal answer to "how long do you think it will take the market to recover from its current 33% loss?", he shows your own expected annual return:
As I pointed out in my email last week, the average length of time to recover from a crash (post-WWII) was about 17 months. More conservatively, Nick uses a time frame of three years.
"Think about what this means. If you aren't buying at these levels, you are implying that (a) you don't want 14% annual returns for the next 3 years or (b) you think it will take markets considerably longer to recover compared to consensus estimates. Even if we assume it takes 5 years to recover, that would be 8% returns over the next half decade. Where else can you get 8% right now? Nowhere."
My takeaway: be a long-term optimist! Keep your head down, and keep buying.
Marc R. Stasik, AIF®, MBA