Who Cares?

Bill Parrott |

Who cares that the current bull market has risen more than 260% when stocks have dropped 7% in the past month? Does it matter that stocks have generated an average annual return of 10% for the past 100 years or markets rise 75% of the time when this year will be negative? Stocks have outpaced bonds and cash for decades, but so what? This year bonds and cash have the upper hand.

The current bull market started on March 9, 2009 after a grueling 17-month bear market. The current recovery is (was) over nine years old – one of the longest recoveries on record.  Did the market go straight up during this historic run? Of course not. It was littered with several corrections.

During this bull market, the Dow Jones experienced 68 days when it fell 2% or more and 45% of the time it produced a return of 0% or worse. The average daily gain has been .06% - yawn.

Here is a year by year look at this bull market.

2009 – After the bull market started, it dropped 7.42%. It finished the year up 18.82%.

2010 – During this year the market fell 7.6%, 13.5% and 5.12%. It finished the year up 11.02%.

2011 – During this year the market fell 6.28%, 7.12%, 16.26%, and 8.17%. It finished the year up 5.53%.

2012 – During this year the market fell 8.87% and 7.75%. It finished the year up 7.26%.

2013 – During this year the market fell 4.86%, 5.6%, and 5.75%. It finished the year up 26.50%.

2014 – During this year the market fell 13.75%, 4.5%, 6.64%, and 4.95%. It finished the year up 7.52%.

2015 – During this year the market fell 14.44%. It finished the year down 2.23%.

2016 – During this year the market fell 10.12%. It finished the year up 13.42%.

2017 – During this year the market fell 1.9% - a mild year. It finished the year up 25.08%.

2018 – This year the market has fallen 11.58%, 4.75%, and 12%. The year isn’t over yet!

As you can see, this bull market experienced significant drops, but it always recovered. Will this time be different? Who knows? Time will tell.

Here are a few suggestions if you’re concerned about the recent market volatility.

  1. If you need money in the next one, two or three years, do not invest it in the stock market. Rather, invest in a money market fund, CD or U.S. Treasury Bill.
  2. If the market is keeping you up at night, your allocation to stocks is too high. Sell your stocks to your comfort level.
  3. Work on your financial plan. Your plan will determine your asset allocation based on your goals. If your plan, goals, and asset allocation are aligned, you’re more likely to stay invested through good times and bad.
  4. Time the market. Sell at the top; buy at the bottom. Just kidding. No one has been able to consistently time the market, but who knows, you may be the one to do it.

These past three months have been brutal. The market downturn has turned a decent year into a poor one. This happens occasionally. During the next two weeks spend some time reviewing your goals. If they’re still intact, stay the course.

People who succeed in the stock market also accept periodic losses, setbacks, and unexpected occurrences. Calamitous drops do not scare them out of the game. ~ Peter Lynch

December 18, 2018

Bill Parrott is the President and CEO of Parrott Wealth Management firm located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process to help our clients pursue a life of purpose.

Note: Investments are not guaranteed and do involve risk. Your returns may differ than those posted in this blog.


Source: YCharts. Year by year data does not include dividends.


Photo Credit: Victor Brave