What Would a Twelve Year Low Feel Like?

This week, we finished one of the worst declines in stock market history.  Declines were widespread, affecting all major equity asset classes, and even spreading to bonds, as selling became relentless.

People are starting to ask, with reason, whether the stock market can ever recover.  Younger people, who have not experienced a true bear market involving their own hard-earned money, are understandably on edge.  All investors are right to be concerned.

It is easy to predict that major declines will happen.  As always, what has proved elusive is to predict when and how far the markets would decline. Here we are.

This excellent article from The Balance discusses historic bear markets, and how to invest in them.  Declines in those markets, measured by the S&P 500, were:

  • 2007-09: down 59% over 27 months
  • 1973-74: down 48% over 21 months
  • 1929-32: down 86% over 34 months

Their investing recommendations are fundamentally sound:

  • Investors who are considering moving entirely out of stocks [should reconsider], since properly timing the start of a new bull market can be challenging. [Meaning, it can’t be done.]
  • Invest only the part of your money you won’t need for another five to ten years. [I’m thinking more like ten at this time.]
  • Keep investing in your retirement funds. You will benefit from buying new shares at lower prices. [This is critical to success.]

What does a market bottom feel like?  CNN Money had the following things to say on March 3, 2009:

  • Stocks reached fresh twelve-year lows today.
  • “Investors are mentally exhausted.”
  • Recent declines are not likely to be the bottom. [It turns out that it was close to the bottom at that time: that’s how you can tell!]
  • “Are you living on your unemployment check? How are you making ends meet?”

The Dow closed at 19173 on March 20. A twelve-year low, which takes us back to March 2009 when the market last bottomed, takes the Dow to 6516.86, a drop of 66% from the March 20 close.  That’s what a twelve-year low would feel like.

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