Do you remember where you were 10 years ago? Among the many March 2008 events that come to mind is the day Bear Stearns died. We still recall the image of that $2 bill stuck on the firm's shuttered front door – a silent commentary on the per-share price JP Morgan had reluctantly offered to bail out the fast-floundering firm.
It was a very difficult time-period for global markets to endure, especially since it turned out to be the first rock to fall in a daunting landslide yet to come.
We wouldn't wish the return of the Great Recession on anyone. That said, have you utilized the time between then and now to better prepare yourself for when (not if) the next big market downturn does occur?
Consider the market wobble we experienced in early February as a fire drill. How did it make you feel? Are you finding yourself bracing nervously? Has it generated doubts about whether you and your investment portfolio are ready for whatever may happen next?
By the time you're reading this, it's possible the market may be declining further … or not. The eternal challenge for investors is that our heads are forever in the daily weeds; if we can see the big picture at all, it can only be in hindsight.
Thankfully, there are evidence-based resources to help us navigate the thickets despite the uncertainty. One such resource is Dimensional Fund Advisors. Produced in early February, its "Recent Market Volatility" report, put the then-multi-day downturn in proper context. We're particularly fond of Exhibit 1 which shows us investors can expect significant intra-year market downturns, but most years deliver positive annual market returns by year-end.
Dimensional observed: "Despite substantial intra-year drops, calendar year returns were positive in 33 years out of the 39 examined. This goes to show just how common market declines are and how difficult it is to say whether a large intra-year decline will result in negative returns."
In other words, the worst time you want to abandon your course is when you're actually running the rapids, so to speak. Sit tight because, odds are, calmer waters will prevail.
If you're not yet convinced, consider the experience of Dave Goetsch, executive producer of the popular network show, "The Big Bang Theory."
Goetsch may do a bang-up job producing his show, but he's now less inclined to behave explosively when investing. That's because, after the last Great Recession, he discovered evidence-based investing. In his own words:
"In February 2009, the stock market was down around 50% from its high, and everyone seemed to feel like the sky was falling. I was familiar with this state of panic because my relationship to the financial markets was that I didn't trust them. … What a difference nine years make. I haven't changed because the stock market rebounded. I changed because I learned that there was a different way to think about investing. … Now, my outlook is totally different. The markets haven't changed; they still go up and down. The difference is, I don't anymore."
Are you ready to take on (or be reminded of) a better approach to investing, come what may in the markets? We're ready to tell you more.
FVIM, is an independent, fee-only registered investment advisor. We partner with individuals and families to manage investments and provide ongoing financial guidance relevant to their personal goals and objectives