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Time to Get Out of the Stock Market?

Home » Windward Passages » Time to Get Out of the Stock Market?

Time to Get Out of the Stock Market?

Posted on: February 18, 2016

Author: Darrell R. Tierney CFP® CPA PFS

“Let’s get out until things get back to normal.”

blog_time to get outWe’ve heard from people wanting to sell their stock market holdings and get back in later, when things “calm down.” They don’t want to take that long ride down. As I’m writing this (February 11, 2016), the S&P 500 is down 11.47% since January 1, 2016.

Is this year’s market decline unusual? The ride certainly feels bumpy. I believe this is garden variety, business as usual, volatility. According to J.P. Morgan’s Guide to the Markets® U.S. 1Q 2016 (the Guide), since 1980 the average calendar intra-year market drop is 14.2%. So we’re not even at average yet!

The Guide also shows that despite the 14.2% average decline, for the last 36 calendar years, the S&P has had positive returns in 27 years and negative returns for nine. Does this mean, despite the market drop since January 1st, the year will end on a positive note?

This could well be the start of a bear market or it could be a great year. I have no idea. Further, I don’t think anyone else does either.  In my opinion, the question to ask isn’t where will the market be at year end; it’s where will the market be in five or ten years?

According to J.P. Morgan, since 1950, the S&P’s worst calendar year decline was 39% and the best calendar year return was 47%.  That’s a large, scary range. But let’s look at average returns for rolling periods from 1950 to 2015:

                        Worst                    Best
Five years       -3%                       28%
Ten years        -1%                       19%
Twenty years   7%                        17%

This tells me that money needed in the next five years doesn’t belong in the stock market-there is just too much short-term volatility. But history also tells me, for money I need in five years or more, there isn’t as much risk and some nice upside.  We know that the past does not guarantee anything about the future, but I also believe that short-term and long-term stock market risks are very different.

So my advice is to keep your eyes on the horizon and don’t let the short-term noise drown out the long-term opportunity.  History is on your side.

 

References:
1.  J.P Morgan’s Guide to the Markets® U.S. 1Q 2016

 

This blog is provided by Windward Private Wealth Management Inc. (“Windward” or the “Firm”) for informational purposes only. Investing involves the risk of loss and investors should be prepared to bear potential losses. No portion of this blog is to be construed as a solicitation to buy or sell a security or the provision of personalized investment, tax or legal advice. Certain information contained in the individual blog posts will be derived from sources that Windward believes to be reliable; however, the Firm does not guarantee the accuracy or timeliness of such information and assumes no liability for any resulting damages.  

Windward is an SEC registered investment adviser. The Firm may only provide services in those states in which it is notice filed or qualifies for a corresponding exemption from such requirements. For information about Windward’ registration status and business operations, please consult the Firm’s Form ADV disclosure documents, the most recent versions of which are available on the SEC’s Investment Adviser Public Disclosure website at www.adviserinfo.sec.gov.

Filed Under: Building Wealth, Financially Independent, Investment Planning, Leaving a Legacy, Recent Posts

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