Since we sent our 2020 market outlook letter just over a month ago, investors have added coronavirus to the list of near-term worries. We certainly don’t blame anyone for feeling unsettled about this global—though still mostly limited to China—health threat and we have plenty of compassion for those directly affected.
Prior to this week, global markets had been taking this new development in stride. The last couple days, however, not so much. Maybe you noticed the drop in the stock market, maybe you didn’t. And again, no judgement if you did and it made you fearful or any other in a range of very normal emotions. The news on this may get worse before it gets better.
When markets get rocky and volatile from time to time, which they tend to do, we’re all prone to letting our emotions get the better of us. And it’s during these times that we’ve seen some of the most serious investor errors made. We may be tempted to think that the next bear market is right around the corner and that we can avoid the coming pain by getting out just in time to miss it. Even if we manage to get that right, how do we know the right time to get back in? More on that soon. Let us say as strongly as we can, we don’t believe that’s a bet any investor can consistently win. And therefore, it’s not one we are willing to make.
We best serve our clients with a common sense approach to staying invested for the long-term. We see this as an advantage in a market where many participants can’t or won’t do the same. Despite the crises, crashes, conflicts, elections, politics, recessions, bear markets, (and now add coronaviruses to the list) an investor in the stock market would have returned an estimated 10% per year over the last 50 years.
We recently came across an excellent analysis demonstrating the value of staying invested and the potential harm in not doing so. Using the S&P 500 index as our broad U.S. stock market proxy, staying invested over the last 15 years—through the end of 2019—would’ve produced an average annual return of 9% per year. If our hypothetical investor missed the 10 best days over that period (out of nearly 3,800 total trading days) the returns would’ve been less than half that at 4% per year! And if the best 30 days were missed, this investor’s returns would’ve been a negative 1% per year!
We’ll admit that market turbulence isn’t much fun but we encourage you to hang in there (and feel free to turn off the financial news!) when it does. We’re working hard to keep our clients appropriately invested and are plenty optimistic that our disciplined approach to buying good assets at sensible prices can pay off handsomely over the long run.
If you think our approach might serve you well, please reach out. If nothing else, please know you can use us as a second opinion and resource for any questions or concerns. We’d love to hear from you and have the opportunity to be in your corner.
And if you have any family or friends that are concerned about the market environment and could use the encouragement, please feel free to pass this along!