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Market Worries? This Time It's Different?

When markets drop, anxiety increases. It’s normal human behavior. Add in the backdrop of war, a humanitarian crisis, mass shootings, and economic worries, and it’s natural to wonder what the impact on investment performance will be. Should we be doing something different with our investment dollars? 

It’s times like these that slowing down and taking a broader perspective can be helpful in reframing our current worries. Let’s go back to 1999 when BAM was founded, 23 years ago.    

  • Y2K Armageddon is coming. All our computers will be reset to zero.
  • War erupts in Kosovo.
  • Pakistani government is overthrown and fighting with India intensifies.
  • US Senate opens impeachment trial of Bill Clinton.
  • Columbine massacre in Colorado high school.
  • Number of internet users worldwide reaches 150 million with over ½ from the US.   

Here’s the next question: Would you invest in the stock market in 1999 knowing the following events were going to happen? And could you stay invested? 

  • Tech stock collapse of 2000-2002: 78% drop for Nasdaq stocks.
  • 9/11-2001: stock market closes and, upon reopening, drops 14% in a few days.
  • “Lost Decade” for US stock returns between 2000 to 2009: US stocks lost 1% for the entire decade.
  • Great Recession of 2007-2009: stocks lower by 43%.
  • Global Pandemic of 2020- 2022(?): US stocks are currently lower by 14%. 

Looking at the entire time frame, January of 1998 through May of 2022, the US stock market returned, on average, 8% per year despite the obstacles. $10,000 invested at the beginning of the period would be worth about $65,000 at the end of May 2022. These stock returns (~8% per year) are very much in line with what returns have been over the history of the stock market. How is that possible? The market is doing its job. It’s simply science.    

Investing in the markets is always uncertain. Uncertainty never goes away. If it did, there wouldn’t be a stock market. It’s because of the uncertainty that we have a positive premium when investing in stocks vs. relatively riskless assets such as cash or CD’s. For us to benefit from that premium we must be in the markets for the good as well as the bad times. By investing in broadly diversified, low-cost funds rather than trying to do the almost impossible job of accurately forecasting which stocks are going to do well, we position ourselves to capture returns from the markets wherever they emerge. “Owning the haystack rather than looking for the needle” as Jack Bogle of Vanguard described his investment process.   

We are betting on human ingenuity to continue to solve problems and markets to continue to reward investors for taking risk. The pandemic was a big blow to the economy, but people, companies, and markets are adapting as they always do. The world may be changing but investors need to have faith that we will meet the challenges in ways we can’t forecast.    

It’s impossible to predict what might happen in the next 20 years, but I do believe that the best investment strategy going forward is to keep in mind the lessons learned over more than 40 years of investing: Don’t panic. Invest for the long term. And remember legendary investor Sir John Templeton’s famous saying, “The most expensive words in investing are “this time it’s different.”