How Goes the Stock Market

At the middle of December 2018, the year-to-date record of the US stock market as measured by the S & P 500 is not good.  Most gains for the year have been erased and folks that is the end of the world as we know it!

Not so fast.  The short-term headlines are quick to tell us that it has not been a good year, but for those of us who have faith in the market over the long-term, it all fits within a historical pattern that this is temporary.  The overall arc of the market is higher.

Adding perspective: If we take a longer view, which as long-term investors we should, we see a dazzling increase in value.  Starting with the end of the Great Recession, March 2009, the S & P has grown by over 300%, including the current downturn.

As wise investors what should we do?  While we know that past performance is not a guarantee of future results, history tells us repeatedly, not just in the last ten years, that notwithstanding dips in the market from time to time, the historical pattern is that drops in the market are temporary but stick around for that higher overall arc.  I know it may sound counter-intuitive, but these downturns are actually opportunities to buy stocks at discounted, lower prices.  This is one of the investment strategies available to increase your long-term gains.  Another is not to panic and sell out your positions.  If you do that you have converted a temporary paper downturn into a permanent loss.

Another lesson is that by designing an international asset class balanced portfolio long term, you expect to weather the beating the markets take over full cycles.  Full cycles are very different from years within the cycle, and you should evaluate your positions by their performance in their asset class, not other asset classes.  Rebalancing portfolios as appropriate only adds to the potential for greater returns and the ups and downs of each asset class are key to long-term success.

-Norman Berk