What we can learn from market history
NOTE: The following information is by no means intended as predictive. According to Kiplinger newsletters, a US large cap (S&P 500) market decline of 10-20% occurs on average about once per year as measured over the past 40 years. A decline of 10-20% is considered a “correction.” Yet, we have only had two corrections since the market recovery began in March 2009.
Also, according to Kiplinger newsletters, a US large cap (S&P 500) market decline of over 20% occurs on average about once per three years as measured over the past 40 years. A decline of 20% or more is called a “bear” market. Yet, we have not had a decline of 20% or more since the market recovery began in March 2009.
According to a Barron’s article in January 2016, declines that occur during non-recessionary periods typically have fairly rapid recoveries – Think one year or less. Since March of 2009 the US markets have only had two corrections.
We experienced a correction in the summer of 2011 when President Obama and then Speaker of the House, John Boehner, were unable to agree on a tax and spending plan. Another correction occurred starting in May 2015 and lasted until early February 2016. The root cause was investor concerns about slower economic growth in China. In both cases, recovery occurred within less than one year.
My colleagues and I routinely believe our clients should be fully invested, especially during non-recessionary periods such as we are presently experiencing. We cannot predict when good or bad markets may occur. So, our investment view is as follows: it is time in the market, not market timing that is important. We practice a time-tiered portfolio approach so that near term money is not overly exposed to the potential ravages of a large decline. Importantly, we respect that our clients have full authority over how their money is invested with our firm.