No Bad Days? Taking a Wider Look at 2022 Market Performance
You’ve probably seen the window sticker on the back of someone’s SUV. It features the silhouette of two palm trees and beside it the words NO BAD DAYS. With no prior knowledge, you might guess that the saying means: There’s a tropical paradise somewhere where only good things happen.
The sticker and the saying originated with Tom Sample, a Californian who in the early 90s would travel all the way down Mexico’s Baja Peninsula to go saltwater fishing off Cabo San Lucas.1
Normally, a good day fishing is when you catch something and a bad day is when you come back empty handed. But for Sample, just being in Cabo made every day a good day. Even when he’d paid for fuel and bait, had to get up really early, and then spent hours out on the water with nothing to show for it—even then he was grateful. It was a privilege just to be there.
Could we say the same thing about the stock market in 2022?
At first glance, no. In terms of performance, the market had what could only be described as bad days. In fact, in the first half of the year, there were whole months where investors experienced the anxiety of dropping indexes. June was especially bad, with the S&P 500 index falling more than 7%.
For those of us watching our holdings shrink week after week, it might have felt like a disaster. But how bad was it really, in the big scheme of things?
Helen Yang, CEO and founder of financial analytics firm Andes Wealth Technologies, ran an analysis of June’s decline (the worst month in 2022 for investors) to see how it affected long-term performance.2 In the 12 months leading up through June, the S&P 500 lost more than 12% of its value. If you were forced to sell all your investments that month, it would have been costly.
But Yang points out that investors with longer timeframes had much less to be unhappy about. An investment in the S&P 500 for the ten years leading up through June, 2022 would have had an annualized return of 12.7%. And for planning purposes 8% is often assumed to be safe. (Since this analysis the index has posted a modest gain of just over 4%.)
“Risk perception is an integral part of a risk-measurement framework,” writes Yang, “and irrational responses are often triggered by the wrong perception of risk.” In other words, recency bias (a fallacy where we give undue weight to things we’ve just experienced) can skew how accurately we are viewing the results of our long-term plan.
So can we honestly say that the market has no bad days?
Since the only way to benefit from the market’s potential gains is to be invested in it, and since no one can predict when those gains will occur, we must accept that by participating we will necessarily experience down days, months and, sometimes, years.
But when you have a long-term view, and you truly understand the power of compounding gains where your money goes out and works to grow your wealth, then you can be grateful to be in the market even on those days when your current balance is not going up. It’s always a good day when you have that opportunity.
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