Each time we have a bad market, the media pundits starts saying “it’s different this time” and we all buy into it. The reality is they’re partly right because the circumstances surrounding each drop are rarely the same. However, I attended a conference and was shown how in each of the last 12 bear markets since the Great Depression, the decline IS actually the same.
First, after each decline, the stock markets have always come back and often very dramatically. I want to stress the word “always” here.
Second, during each decline no one could predict whether the next 20% move would be up or down, but the next 100% move was always up.
Third, we know that only people who panicked and sold actually locked in losses. The rest were just temporarily down in value.
Fourth, we know that “if it bleeds, it leads” in the news. The media can create both fear and panic by the words they choose to put in their headlines such as “plunge” or “surge”. Notice the sensationalism each time the markets go up and down a percent. The reality is market volatility is normal and an expected part of owning stocks.
Finally, even if you invested money at the very beginning of each bear market, stocks have always subsequently outperformed bonds.
Bill's Bottomline: When you’re in a market down draft and you begin to feels like it will never end, it does. Bad times and good times don’t last forever. The reality is somewhere in between. Remember that market prices are random and unpredictable. If you have a sound allocation, stick with it.
Bill Losey, CFP®, America's Retirement Strategist®, coaches women and couples nationwide with their retirement planning and investment portfolios. Bill is the author of Retire in a Weekend! The Baby Boomer’s Guide to Making Work Optional and he also publishes Retirement Intelligence®, a free weekly award-winning newsletter. You can download over $695 worth of FREE Retirement Resources now at www.MyRetirementSuccess.com.