The market is experiencing another lurching downturn after experiencing a previous couple of weeks of encouraging gains, and that tells you most of what you need to know about the markets. After mounting a 13.8% recovery from October lows (trending from 3,583 to just over 4,000), the S&P 500 has, in recent days, surrendered nearly 6% of that gain, closing most recently at around 3,845. In fact, the broad market index is on track to deliver its worst annual return (currently about -19%) since the onset of the Great Recession in 2008 (when the S&P 500 was down over 30% for the year).
On the other hand, and despite the breathless reporting in the financial press, stock prices go up and down—and up and down again—more or less at random (in the short term) and have consistently shown incremental gains (in the longer term). Unfortunately, it’s hard to see that generally upward trend for all the short-term noise.
Of course, it’s possible that this time it’s different: that the century-long increases in share prices (plus dividend payments) are about to come to an end. We may be entering a time when all the efforts of all the people who go to work in the offices of all the publicly-traded companies (or, lately, in their homes) will lead, against all logic, to consistently declining long-term value, and the markets will go down, down, down until they finally touch bottom. Of course, long before that happens, most people will be out of work, companies in every sector will go bankrupt, and chaos will reign.
People will sometimes fear the worst and ask what kind of investments would thrive in a really, truly worst-case economic/market scenario. And there is a ready answer for that. Your best “investments” (if you could call them that) for a total breakdown of the economic system would be a hideout deep in the woods, guns and ammo to protect yourself from the hungry masses, and plenty of seeds so you could grow your own food. A very large stockpile of canned/concentrated food and access to a water supply would complete the picture, and if you believe that some kind of barter system would survive the global catastrophe, then maybe you could stockpile gold Krugerrands.
Of course, the end of the world has been predicted more than a few times over the years, and the historical failure rate of those predictions is running right at 100%. We may see a recession next year, we will certainly see more confusing fluctuation in share prices day in and day out, and the financial press will continue to think that these entirely normal market fluctuations are “news.” But if history is any indication, patience in the markets, sticking to your long-term plan, broad diversification, periodic rebalancing, and the discipline to ride out bumps in the roller coaster will likely be rewarded in the end.
Empyrion Wealth Management is a fiduciary financial advisor and wealth manager. That means, among other things, that we deliver up-to-date, evidence-based financial and investment advice that keeps the client’s best interests foremost at all times. In every phase of the market cycle, whether the economy is expanding or contracting, we provide guidance that you can depend on for your most important financial and investing decisions. To learn more, read our recent article, “Are We in a Recession—Or Not?”
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