Jonathon Allen, CFP®
Here's the most important question: Do you think the stock market will recover?
The editors of Business Week once thought the answer was a resounding, “No.” On August 13, 1979, the cover of the magazine declared: The Death of Equities: How Inflation Is Destroying the Stock Market. The S&P 500 Index closed at 107 that day. As it turned out, they were wrong, and equities weren’t dead. The value of the S&P 500 Index rose significantly over the next few decades.
Over the last 50 years, there have been other events that caused investors to think the worst. For example:
Black Monday. At the end of trading on October 19, 1987, stock markets around the world had experienced the biggest one-day decline in history, according to the Federal Reserve. The Dow Jones Industrial Average lost 22.6 percent that day and finished at 1,739. (The Dow had gained 44 percent during the previous seven months.) Last week, the Dow closed at 32,197.
The Dotcom Bubble. In the 1990s, everyone wanted to participate in the commercialization of the internet by investing in technology companies – even those that weren’t profitable. A speculative bubble formed and popped, reported Adam Hayes of Investopedia. The Nasdaq Composite Index lost almost 77 percent from March 2000 to October 2002, when the Index moved up from a low of 1,114. Last week, the Nasdaq finished at 11,805.
The Housing Market Crash. The subprime mortgage market grew fast in the early 2000s, following a change in regulations. Lower-quality mortgages were often included in mortgage-backed securities. When home prices fell, borrowers defaulted, and financial markets were disrupted, reported Paul Kosakowski of Investopedia. The S&P 500 fell from 1,565 in October 2007 to about 1,276 in March 2008. Last week the S&P 500 finished at 4,024.
The weight of evidence accumulated over time supports the idea that holding a well-allocated and diversified portfolio focused on your financial goals is a sound choice. During periods of volatility, like this one, it’s important to stay focused on your long-term goals.
Past performance is no guarantee of future results.