Navigating Stormy Seas

As with the weather at sea, global stock markets can be truly unpredictable. A sudden squall can whip up waves of volatility, tides can shift, and strong currents can threaten to blow you off course. Over the last two years, conditions have felt turbulent far more frequently than calm.  These periods of extreme weather can be uncomfortable even for experienced sailors with many ocean crossings under their belt; that’s because they create uncertainty.  Uncertainty can create feelings of fear, anxiety, and may even lead you to question what the heck you are doing sailing around an ocean in the first place?

The Turbulent Growth of the S&P 500 Index
Jan 1, 2020 – September 28th, 2022. Returns presented in USD.

Despite still delivering a positive return since the beginning of 2020, investors have had to deal with a few rogue waves over that time.  Covid’s global spread in the spring of 2020 brought with it a decline of 34%.  The hangover from Covid has created a climate of global economic and geopolitical uncertainty. This uneasiness has caused a widespread drop in stock markets so far this year. While these turbulent events have been stressful as an investor, it’s important to remember that they aren’t permanent state of being.  These squalls shall pass, and once they do, you can pick up speed again. Just as a sturdy vessel will help you withstand most conditions at sea, a well-diversified portfolio can act as a bulwark against the sometimes-tempestuous conditions in markets.

Calm Conditions Have Prevailed – S&P 500 Index Total Returns Through Time
January 1926 – December 2021.  Returns presented in USD.

From 1926 through 2021, the S&P 500 Index experienced 17 bear markets, or a fall of at least 20% from a previous peak. The declines ranged from —21% to —80% across an average length of around 10 months. On the upside, there were 18 bull markets, or gains of at least 20% from a previous trough. They averaged 55 months in length. When the bull and bear markets are viewed together, it is clear that calm seas have been more common than not.

The important point is that you become comfortable with the idea that uncertainty is inherent to the investment journey, just as it is with any sea voyage.  That is why preparation and planning are so critical. While you can’t control every outcome, you can be prepared for the range of possibilities and understand that you have clear choices if things don’t go according to plan.

If you can’t live with the volatility, you can change your plan. If the goal looks unachievable, you can lower your sights. If it doesn’t look as if you’ll arrive on time, you can extend your journey. Of course, not everyone’s journey is the same. Neither is everyone’s destination. We take different routes to different places, and we meet a range of challenges and opportunities along the way. But for all of us, it’s critical that we are prepared for our journeys in the right vessel, keep our destinations in mind, stick with the plans, and have a trusted navigator to chart our courses and keep us on target.

Markets Reward Discipline

In this short video, Jake DeKinder, Head of Advisor Communication at Dimensional Fund Advisors, explains how capital markets have rewarded investors that are able to tune out short-term noise and stay disciplined over the long-term.

We’re Here to Help

If you feel that your plans have changed or you would like to revisit your goals to make sure you are still on the right track, we would be happy to discuss them with you. Please contact us to book an appointment as we are here to help guide you every step of the way.

Charts above provided by Dimensional Web