Advertisement
Markets

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.”

Advertisement - Article continues below

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.

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.

Advertisement
Advertisement - Article continues below

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.

Advertisement - Article continues below

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?

Advertisement - Article continues below
  • 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.

Advertisement
Advertisement - Article continues below

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.

About the Author

T. Eric Reich, CIMA®, CFP®, CLU®, ChFC®

President and Founder, Reich Asset Management, LLC

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

Advertisement

Most Popular

What Are the Income Tax Brackets for 2020 vs. 2019?
tax brackets

What Are the Income Tax Brackets for 2020 vs. 2019?

The IRS unveiled the 2020 tax brackets, and it's never too early to start planning to minimize your future tax bill.
June 20, 2020
Tax Changes and Key Amounts for the 2020 Tax Year
tax law

Tax Changes and Key Amounts for the 2020 Tax Year

Americans are facing a long list of tax changes for the 2020 tax year...and it's never too early to start thinking about next year's return.
June 22, 2020
10 Tax Breaks for the Middle Class
tax deductions

10 Tax Breaks for the Middle Class

Tax breaks aren't just for the rich. There are plenty of them that are only available to middle- and low-income Americans.
June 30, 2020

Recommended

Avoid Blindly Following Random Benchmarks on the Road to Retirement
retirement planning

Avoid Blindly Following Random Benchmarks on the Road to Retirement

Unless the benchmark is relevant to your personal plan, it could steer you into taking a wrong turn.
July 8, 2020
Where Should You Retire?
retirement planning

Where Should You Retire?

This week, our Your Money's Worth podcast host Ryan Ermey interviews co-host Sandy Block about her recent story about the best retirement destinations…
July 7, 2020
Find a Great Place to Retire
happy retirement

Find a Great Place to Retire

Our cities provide plenty of space to spread out without skimping on health care or other amenities.
July 2, 2020
Searching for the Perfect Place to Retire
Empty Nesters

Searching for the Perfect Place to Retire

We home in on two places with less traffic and lower costs. 
July 2, 2020