A Stock Market Lesson to Remember
Steven M. Gronceski, CFP®, AIF®
Vice President, Wealth Management
630-455-4700 ext. 208
May 29, 2020
Confidence can quickly erode, but it can also quickly emerge.
Undeniably, spring 2020 has tried the patience of investors. An 11-year bull market ended. Key economic indicators went haywire. Household confidence was shaken. The Standard & Poor’s 500, the equity benchmark often used as shorthand for the broad stock market, settled at 2,237.40 on March 23, down 33.9% from a record close on February 19.1
On April 17, the S&P closed at 2,874.56. In less than a month, the index rallied 28.5% from its March 23 settlement. And while past performance does not guarantee future results, there is a lesson in numbers like these.1
In the stock market, confidence can quickly erode – but it can also quickly emerge. That should not be forgotten. Rebalancing during this time has proven to be beneficial. Did you consider being proactive or just reactive? Did your current advisor contact you to discuss strategies?
There have been many times when economic and business conditions looked bleak for stock investors. The Dow Jones Industrial Average dropped 30% or more in 1929, 1938, 1974, 2002, and 2009. Some of the subsequent recoveries were swift; others, less so. But after each of these downturns, the index managed to recover.2
Sometimes the stock market is like the weather in the Midwest. As the old Midwestern cliché goes, if you don’t care for the weather right now, just wait a little while until it changes.
The stock market is inherently dynamic. In tough times, it can be important to step back from the “weather” of the moment and realize that despite the short-term volatility, stocks may continue to play a role in your long-term investment portfolio.
Evaluating your optimal exposure should be an ongoing activity not just after market events that are perceived negative. When did you last asses your risk tolerance?
When economic and business conditions appear trying, that possibility is too often dismissed or forgotten. In the midst of a bad market, when every other headline points out more trouble, it can be tempting to give up and give in. Establishing and updating a Financial Plan can provide a track to run on and a tool to monitor goals as well as the effects of market events, tax law changes, and unexpected job changes – all of which have just happened for most Americans.
Confidence comes and goes on Wall Street. The paper losses an investor suffers need not be actual losses. In a down market, it is perfectly fine to consider, worry about, and react to the moment. Just remember, the moment at hand is not necessarily the future, and the future could turn out to be better than you expect.
Next steps to consider. Obtaining a second opinion is the best start. Committing to planning and understanding what might have worked last year might not work this year is critical too. Assemble a team (Financial Advisor, Attorney, and Certified Public Account). Seeking to be proactive will bear fruits for your future.
1. WSJ.com, 2020
2. USAToday.com, March 21, 2020
Keep in mind that the return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost.
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