Stock Market Disaster or Opportunity?

Personal Money Planning |

Stock Market Disaster or Opportunity?

By Gary Silverman, CFP®

As I write this, the Vanguard 500 Index Fund is down close to 14% this year, as is the Vanguard Total World Stock Index Fund, a broader measure of the global equity markets.

Since all of you follow my advice (yes, I’m being sarcastic) you certainly don’t put all your money in the stock markets, so how did a mix of stocks and bonds do? Looking at the T. Rowe Price Balanced Fund, things are indeed better. It’s “only” down 12.5%. That’s because the bond markets are also down. And while they are down less than stocks, given that most people think of them as safe and use them in their portfolio as such, this may have been a startling event.

On the heels of this rather dismal year, I received emails from two clients. One asked what we were doing to keep from losing any more money, the other if we agreed with him that this was a good time to put money into the markets. Two people with opposite thoughts looking at the same data.

Making the assumption that in the week between writing this and when you read it, the markets still look miserable, the question remains: What you should do? We’ve talked about this a bit this year already, but I find as the markets get lower and people see real dollars disappearing from their portfolios, the discussion becomes more meaningful to more people.

There are two main facts that need to be front-and-center in our discussion. First, the stock and bond markets have recovered their losses every single time they have been down as far back as you look. Second, in the 2007-2009 bear market known as the Financial Crisis, most stock indices lost over half of their value. Knowing that the stock market always recovers is of little comfort when you are about to retire and see that your nest egg dropped by 25%, 35%, 50%, or more.

“But surely, you’re not saying that losses like we saw during the Financial Crisis could happen again now?” Yes, that’s exactly what I am saying. The emphasis though should be on the word “could”. I do not know that we will have a repeat, I am not predicting that we will have a repeat, but I am making sure that the portfolios I manage can survive a repeat.

“So then, you’re going to cash now?” Nope, because in addition to making sure that a portfolio can survive another Financial Crisis, I need it to be able to survive if that doesn’t happen. Most of the folks we help are not the kind who can live happily on the 0.01% they get on cash. They need their portfolios to grow.

This tension between being safe and investing for growth is always there, it’s just a bit more obvious now. We’ll talk more next week.

May Ukraine stay free.

Gary Silverman, CFP® is the founder of Personal Money Planning, LLC, a Wichita Falls retirement planning and investment management firm and author of Real World Investing.