Ever since the stock market was first introduced, investors have been concerned about declining markets.
It’s only natural.
In fact, there hasn’t been a single year since the Great Depression during which world events have not impacted investor sentiment. When the dust has cleared, however, financial markets have always found a way to survive some bruising world events, either made by man or nature.
In order to best manage their fear, we encourage investors to always establish a quality portfolio that follows an established process. The asset mix must be consistent with your cash flow needs, time horizon, investment objectives and risk tolerance. For investors with longer-term time horizons, declines in the markets may provide an opportunity to buy quality investments at lower prices.
It is, however, extremely challenging to try to time when the markets will pull back.
To illustrate this point, the following scenarios were compiled by Scotia Asset Management using data from the Bloomberg S&P/TSX Composite Total Return Index (the “Index”) between Jan. 2, 2007 to Dec. 30, 2018. It assumes that, at the beginning of January 2007, four investors (A, B, C, and D) each had $10,000 to invest.
• Investor A missed the 30 best days the accumulated returns would be $4,300, and value of Investor A’s account on Dec. 30, 2018 would be approximately $14,300.
• Investor B missed the 20 best days the returns would be $5,836, and value of Investor B’s account on Dec. 30, 2018 would be approximately $15,836.
• Investor C missed the 10 best days the returns would be $8,586, and value of Investor C’s account on Dec. 30, 2018 would be approximately $18,586.
• Investor D decided to stay invested the entire period and accumulated returns would be $15,763, and value of Investor D’s account on Dec. 30, 2018 would be approximately $25,763.
Understandably, when the markets experience a correction or decline, it does not instill confidence in investors who stay fully. Nevertheless, investors will be able to weather these periods provided they have a well-designed portfolio, with quality holdings. As much as a decline can catch people off guard, a subsequent recovery can reward their patience. Winston Churchill said it best during the dark days of the Second Word War: “If you are going through hell, keep going.” We have always made it through uncertainty and challenging market conditions in the past. In the long run, the stock market has an upward tendency.
The following is a chronology of significant events that have resulted in market fears to hopefully lend some important perspective that the current concerns in the markets are yet another bump in the road of investing. Concerns that people have today will likely pass only to be replaced with other concerns at some point in the future.
Financial markets have managed to survive the following major events and concerns:
- 1929-30s The Great Depression
- 1939 Second World War begins
- 1940 France falls
- 1941 Pearl Harbor
- 1942 Wartime price controls
- 1943 Industry mobilizes
- 1944 Consumer good shortage
- 1945 Post-war recession predicted
- 1946 Dow tops 200, market “too high”
- 1947 Cold War begins
- 1948 Berlin blockade
- 1949 Soviets explode A-bomb
- 1950 Korean War
- 1951 Excess profits tax
- 1952 U.S. steel strike
- 1953 Soviets explode H-bomb
- 1954 Dow tops 300, market “too high”
- 1955 Eisenhower illness
- 1956 Suez crisis
- 1957 Soviets launch Sputnik
- 1958 Recession
- 1959 Castro seizes power
- 1960 Soviets down spy plane
- 1961 Berlin Wall erected
- 1962 Cuban missile crisis
- 1963 Kennedy assassinated
- 1964 Gulf of Tonkin, Vietnam
- 1965 Civil rights marches
- 1966 Vietnam war escalates
- 1967 Newark riots
- 1968 USS Pueblo seized, Korea
- 1969 Money supply tightens, market falls
- 1970 Cambodia invaded, war spreads
- 1971 Wage/price freeze
- 1972 Watergate
- 1973 Oil embargo
- 1974 Nixon resigns
- 1975 U.S. withdrawal from Vietnam
- 1976 New York City blackout/bankruptcy concerns
- 1977 Energy crisis
- 1978 Massacres in Cambodia
- 1979 Three Mile Island Disaster
- 1980 Abscam scandal rocks Congress
- 1981 U.S. Pres. Ronald Reagan & Pope Jean Paul II shot
- 1982 Worst recession in 40 years
- 1983 Soviets shoot down Korean airliner
- 1984 Iran/Iraq war escalates
- 1985 U.S. become a debtor nation
- 1986 Bombing in Libya
- 1987 Record setting market decline
- 1988 Bank failures peak
- 1989 Junk bond crisis
- 1990 Iraq invades Kuwait
- 1991 U.S. recession, USSR dissolves
- 1992 Los Angeles riots
- 1993 Great flood
- 1994 Federal Reserve raises rates six times
- 1995 Dow tops 4,000 then 5,000, market “too high”
- 1996 Technology stock stumble
- 1997 Asian financial crisis
- 1998 Global economic turmoil
- 1999 Fears of Y2K problem
- 2000 Internet “bubble” bursts
- 2001 Terrorist attacks in U.S.
- 2002 Worst bear market since '29-32, Enron Tyco, Worlcom
- 2003 War in Iraq, SARS
- 2004 Madrid terrorist bombing, Asian tsunami
- 2005 Terrorist attacks in London, hurricane Katrina
- 2006 U.S. housing market declines, Iran nuclear program
- 2007 Subprime mortgage loans
- 2008 Stock market decline, Bear Stearns Bailout, Lehman Bankruptcy
- 2009 Continue stock market decline at start of year, Barack Obama Sworn in
- 2010 Haiti earthquake, U.S. Troops withdraw from Iraq
- 2011 Bin Laden killed, Japan earthquakes
- 2012 Kim Jong Un appointed Supreme Leader (North Korea tensions)
- 2013 Boston Bombings, Xi Jinping elected President in China
- 2014 Eboa Epidemic, Oil Markets Crash
- 2015 Paris Attacks, Europe Refugee Crisis, Greek debt crisis
- 2016 Brexit, Donald Trump wins US Presidential Election
- 2017 Russian interference investigation (Russian tensions), bit coin
- 2018 U.S. imposes tariffs on China, Conflicts with trade agreements, NAFTA agreement uncertainly
- 2019 S&P 500 reaches 3,000, yield curve inversion
Kevin Greenard CPA CA FMA CFP CIM is a portfolio manager and director, wealth management with The Greenard Group at Scotia Wealth Management in Victoria. His column appears every week in the Times Colonist. Call 250-389-2138. greenardgroup.com