We know that the economy has a major influence on financial markets, and we know that the economy is subject to up and down cycles – which can include bear markets and recessions. But as scary as they sound, bear markets and recessions are a normal and regular occurrence.
Since 1929, there have been 27 bear markets in the S&P 500 and, on average, they occur roughly once every 3.6 years. However, they’re generally short-lived, usually lasting 9.6 months on average, though the last complete one we had in 2020 lasted only 33 days. The bottom line is, over a 50-year investment horizon, you can expect to experience roughly 14 bear markets.
You can also expect to encounter a recession or two. Since World War II, there have been 12 recessions and they have lasted on average a little over 11 months each.
So, what’s an investment strategy to help you reach your financial goals no matter what economic conditions we face in the future?
Stay invested, even during volatile times.
Ask yourself this, when you made your decision to invest, was it your intention to re-evaluate the market every time volatility spiked? That’s called market timing and it’s next to impossible to do.
Not only do you have to predict when to get out of the market, but you also must determine when it’s time to get back in. Trying to time the markets is not only exhausting, but ironically, you can increase your chances of underperformance. That’s because some of the biggest one-day rallies have occurred when expectations suddenly have changed during bear markets.
In fact, if you had been invested in the S&P 500 all 3,775 days the stock market was open between 2007 and 2021, but missed just 18 of the best-performing days during that time, your average return would have gone from 8.4% to zero.