The investment markets continue to be volatile. It seems likely that very soon, the S&P 500 will fall below 3,840. When it does, that will mark a pullback of 20% from our most recent all-time high in January. You will likely hear “financial journalists” shrieking about “official bear market territory.”
Remember that most of today’s media seem to be focused on the most alarming information available. They have determined that if people are frightened, or angry, they will pay attention. So, expect to hear plenty about the bear market. But I would encourage you to ask the question, So What? What does it mean that the market has pulled back by 20% from the peak?
I offer some perspective on the S&P 500 Index. I love perspective. Without perspective, we really don’t know what we are seeing. So as of Market close on 11 May:
Current S&P 500 value as of close 11 May – 3,922
Change in S&P 500 value since 1 Jan 2022 – down 17.71%
Change in S&P 500 value since 11 May 2021 – down 5.54%
Change in S&P 500 value since 10 May 2019 (3 years) – up 16.3%/year
Change in S&P 500 value since 11 May 2017 (5 years) – up 12.77%/year
Since BEFORE the Great Financial Crisis – 1 October 2007 – up 10.5%/year
Since BEFORE the Tech Wreck of 2000 – 1 January 2000 – up 6.81%/year
Last 40 Years S&P 500 with dividends reinvested – up 11.95%/year
What I notice when I look at this data, is that the S&P 500 index, or US Stocks, generally grows if you allow three years or more. Generally, stocks are up three years of four. If you are saving for the longer term, say five years, 10 years, or more, stocks are likely to grow faster than inflation and build your savings safely.
So, this pullback is normal. In fact, the chart below shows that since 1980 the average annual pullback for the S&P 500 index is 14% each year. At the same time, the index returned positive returns 32 of those 42 years.
So, no cause for alarm.
Right now, the markets decline is connected to two factors.
- One is inflation connected to supply chain issues and war in Ukraine.
- Another is the risk of recession as the Federal Reserve works to root that inflation out.
It’s important to our economy that we get inflation under control. You only have to think about the 1970s, and the run-away inflation we grappled with in those days, to know how damaging that can be. So, we want to take our medicine, have the Fed squeeze out inflation, and move forward. It won’t necessarily be pleasant, but it’s for the best.
In ny work as a money manager for my clients. I’m a fiduciary, so my focus is always on my clients’ goals and best interests. Most of my clients are focused on long-term goals like retirement income. So, I work hard to position their investments so they can ride through these short-term pullbacks. I constantly monitor and evaluate our investment holdings and make adjustments any time I think an adjustment will help.
If you want to talk about the Bear Market and what it means for your family, follow this LINK to find a time to talk. I would be honored to serve you.
As you visit with financial planners, I suggest a couple of things to check:
- Is the advisor always the client’s advocate – a fiduciary advisor?
- Is the advisor paid by clients, not financial product manufacturer or distribution network? That would be a fee-only advisor.
These two points help assure that you are working with a professional who is committed to your best interest at all times. It seems sort of obvious to me that a professional would work in this way, but it’s not automatic.
A fiduciary, fee-first, CFP® professional can help you make great retirement income choices and develop a comprehensive financial plan that is driven by your goals and priorities and addresses all aspects of your financial life. With a big-picture approach, you will be better prepared to understand your options at every step along the way.
Yes, I am a CFP® professional. I’m always a fiduciary and I work on a fee basis. And yes, I’m still taking on a few great families to be part of my financial planning practice.
If this article has you thinking about your own circumstances, contact my office at firstname.lastname@example.org. I am always happy to meet with people who are working on their retirement plans. Dunncreek Advisors does not provide legal or tax advice, nor is this article intended to do so.