Answering the Question: Where Do We Go From Here?
Even as the stock market has continued to climb recently month in and month out, investors are becoming uneasy.1 They worry that inflation will once again run rampant. That the Fed will not cut interest rates. And that what seems like a promising economic recovery will run out of gas.
The uncertainty about the future is prompting many to ask, “Where do we go from here?”
The implication is that being in the stock market has been pretty good recently, but maybe it’s time to think about looking elsewhere for growth.
“History doesn’t repeat itself, but it often rhymes” is a quote traditionally attributed to Mark Twain.2 Whether he said it or not, it does a good job of expressing how we seem to find ourselves replaying somewhat familiar situations. And if we have a short memory, we can react with the mistaken notion that we are encountering something new.
A look at past periods of severe market uncertainty serves to illustrate this unnecessarily limited view.
In 2003, the dot com bust had dragged the market through three straight years of contraction. In 2009, the financial crisis caused the largest one-year loss in recent history. And in 2022, rampant inflation and the resulting spike in interest rates caused the stock market to contract by nearly 20% along with the worst bond market we’ve seen in decades.3
In each of these cases, investors disheartened by steep declines were asking, “Where do we go from here?” The market was simply not working like they had expected it to. And maybe it was time to look for another place to invest.
As we can see in hindsight, that was exactly the wrong thing to do. In 2003, 2009, and 2022, investors had no way of knowing they were near the end of their respective corrections. Knowing what we know now, “Where do we go from here?” was a potentially dangerous question if the answer resulted in changing your strategy. Getting out of the market at any of those times would have turned paper losses into real losses.
Since 1996, the S&P 500 has averaged an annualized return of about 9%, and 6.8% above inflation. That includes those periods that had investors wondering if they’d be better off elsewhere.
So today, while we don’t know which way the market will go in the near-term, history has shown that in the long-term it rewards investors who stay put when others are leaving in search of greener pastures. And, while we certainly don’t hope for them, significant periods of price declines are to be expected.
Because the market is so uncertain, the prudent investor will enlist the help of a trusted advisor. First, to help create a plan tailored to their unique situation. And second, to hold them accountable to stay the course for the long-term.
