TIME TO STEP AWAY FROM THE CLIFF…
According to the International Monetary Fund [IMF], there have been 120 financial CRISIS’ since 1970. EVERYONE OF THEM HAS ENDED!
As the oldest stock benchmark in the world, the 118-year-old Dow Jones Industrial Average offers a decent look on performance over the past 100 years. It shows that the U.S. stock market has endured 19 periods in which the index has dropped at least 20%.
It may be too soon to know whether a the recession ended this past week, but in any case, history suggests that the resiliency of the market should not be underestimated. This is shown in the chart below, supported by these observations:
The average decline in the DJIA during the 19 previous “bear markets” was 37%.
In the years following the bottom of these 19 bear markets, the DJIA had an average annual return of 40%.
The S&P 500 Index has been published since the 1920s as a broader measure of U.S. stocks than the DJIA. This index corroborates results during the past 13 bear markets (not counting the current one). The S&P 500’s average annual return in the years following bottoms was 44%.
Most importantly, in every year since 1900 after a decline of at least 20% in the DJIA, stock market returns have been positive. The graph below shows each period since 1900 in which the Dow has declined more than 20% and the average’s annual return in the year following the decline.
· Most of you should NOT be trading individual stocks right now.
· Most of you have “time-lines” before retirement of at least 10 years – so RELAX – historical data is on our side.
· Most of you should NOT be liquidating your retirement accounts to cash – if you sell at the bottom – YOU ARE JUST LOCKING IN YOUR LOSSES
· You don’t look at the value of your house everyday – don’t look at your retirement value everyday.
And even if you are string down the barrel of retirement and your nest egg has suffered from recent events, remember, the day you retire – you DON’T pull all of your money out of your account and set it on the kitchen table and sit and stare at it! The money stays where it is and generates income for you…Remember, the only way you can get hurt on a rollercoaster is if you jump off!
