A Reality Check 11 Years after the Last Crash

Eleven years ago, many investors watching the Dow gyrating thought things could only get worse and that we'd never see 14,000 again. Clearly, they were wrong. So, what does that mean for worried investors today?

This week marks 11 years since the bottom of the market on March 9, 2009. The timing of last week's extreme market volatility was perfect for us to reflect on where we were, where we are, and where we will likely be heading.

Prior to the great recession and subsequent market crash in 2008 the Dow Jones Industrial Average had reached a peak of 14,164 on Oct 9, 2007. By the time the market reversed course on March, 9 2009, the Dow had fallen all the way down to 6,547. At this time, none of the news regarding the markets was positive. Investors feared that the market would “fall to 0” and were reluctant to invest in equities. I frequently heard “of course it did, we were at a record high!” “The market should have never gotten that high in the first place.”

The reality however is that the markets are frequently at record highs. Why? Because while the markets go up and down, they have always trended higher for the last 200+ years. If they trend higher over time, we would expect to be at or near a record high more often than not.

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Earlier this month the Dow hit an all-time high of 29,551 on Feb 12 before falling to 24,811 on Feb. 28. Now let's use that as a learning tool. We went from a record of 14,164 down to 6,547 and back up to 29,551. And to think people thought the market was too high at 14,000. Since that previous high, the Dow more than doubled in the following 11 years.

This gives us a great sense of perspective. Many people thought we would never see 14,000 again, and in a little over a decade, we are twice that high.

So, what can this tell us about what to expect going forward? First, markets over longer time periods will trend higher regardless of what is happening on any given day, week or year. We have had only 10 instances of 3% back-to-back weekly declines like we had last week since 1950. While that is significant, where were the markets one year after each of those occurrences? Nine of the 10 times that has happened, the S&P 500 was up between 6.2% and 45%, with an average return of 22.8% a year later!

Declines like these are to be expected and are a normal part of market cycles. Since the current record bull market, we have had seven corrections, which is defined as a 10% drop or more. That means that we’ve had six other drops like last week, just over a longer period of time.

So, what does all of this mean for you and your portfolio?

  • First, if you are more than seven-10 years from retirement, you may not need to do anything, but you should still review your portfolio.
  • If you are in or near retirement, now is a great time to review your portfolio and its exposure to risk. Consider rebalancing it to a more conservative allocation if you are unable to tolerate losses.

On a non-investment note, now is a great time to consider refinancing your mortgage as rates have come back down to near-record lows. We will likely not see rates this low again in our lifetimes, so I suggest you check to see if that would benefit you.

I hope this helps to keep things in perspective and to realize we have been here before, and it is perfectly normal so don't panic.

Sources: BTN Research. The Dow Jones Industrial Average is a popular indicator of the stock market based on the average closing prices of 30 active U.S. stocks representative of the overall economy. This material contains an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable. The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney or tax adviser with regard to your individual situation. Comments concerning the past performance are not intended to be forward looking and should not be viewed as an indication of future results. Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Reich Asset Management, LLC is not affiliated with Kestra IS or Kestra AS.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

T. Eric Reich, CIMA®, CFP®, CLU®, ChFC®
President and Founder, Reich Asset Management, LLC

T. Eric Reich, President of Reich Asset Management, LLC (opens in new tab), is a Certified Financial Planner™ professional, holds his Certified Investment Management Analyst certification, and holds Chartered Life Underwriter® and Chartered Financial Consultant® designations.