Not to be too alarming, but we strongly believe that a bear market is headed our way. <\/p>\n
We do not think it will happen in the next six or even twelve months, and no one can say for sure when it will occur or what will actually cause it. In my opinion, the only thing we can say with certainty is that a market meltdown of some kind is bound to happen, and history suggests it will most likely take investors by surprise. <\/p>\n
Does that mean it\u2019s time to move your portfolio into a defensive posture? Far from it, in my view. I think investors would be better served preparing for the inevitable by taking the simple, effective step that has withstood the test of time in my experience: diversifying. <\/p>\n
A properly diversified portfolio, in my view, means managing portfolios in such a way that you can weather the downturns while helping you participate in solid long-term gains over time. Preparing for the next big market downturn doesn\u2019t have to be complicated.<\/p>\n
A Brief History of Financial Crises \u2013 Causes and Market Impact <\/strong><\/p>\n History is one of the most useful tools investors can use to guide the investment decision-making process. History gives us context and reminds us how markets typically behave, both in good times and bad. I think looking back at past crises \u2013 and the impact they had on markets \u2013 offers a valuable reminder of everything stocks have been through over time to get to where they are today. Spoiler alert: stocks have been through a lot.<\/p>\n Do you remember where you were \u2013 and how you felt \u2013 when these crises occurred?<\/p>\n Black Monday, October 19, 1987:<\/strong> 1998 Russian Financial Crisis, August 17, 1998:<\/strong> Dot-Com Bubble and Crash, 2000 – 2002<\/strong> 9\/11, September 11, 2001<\/strong> Global Financial Crisis \/ The Great Recession, 2007\u2013 2009<\/strong> These are just a few of many examples of crises we\u2019ve seen over the years. In this bull market alone, there\u2019s also been the European sovereign debt crisis, the fiscal cliff, Brexit, and more. Looking back at these events shows that stocks are vulnerable to shocks of all kinds, from a wild variety of causes. But in my view, the most important takeaway from looking back is that at the end of the day, stocks have ultimately pushed higher over long stretches of time \u2013 in spite of all the hardships and difficulties. <\/p>\n In my opinion, history tells us that it is more important to recognize where stocks ultimately end up, as opposed to getting too caught up in everything that happens in between.<\/p>\n Bottom Line for Investors <\/strong><\/p>\n The last 50 years of history have brought several wars, an oil crisis, multiple recessions (including one that earned the name \u201cThe Great Recession\u201d), a dot-com bubble that crashed, a financial crisis that brought down some of the world\u2019s biggest banks and destroyed millions of jobs, and one of the worst terrorist attacks in the history of the world (9\/11). <\/p>\n Yet over that time, since 1968, the S&P 500 has ultimately risen over +7,000%.[10] The market never moves in a straight line, and over those 50 years there were plenty of sharp, scary drops. But at the end of the day, the market has repeatedly demonstrated its long-term resilience to crises.<\/p>\n Are we saying to buy stocks for all time and never look back? No! We believe in building diversified portfolios that have equity allocations in-line with an investor\u2019s goals, retirement income needs, and risk tolerance. Sometimes that means heavy allocation to stocks, sometimes less. But over time, we believe the growth engine of any investor portfolio will come from ownership of stocks, and we believe that over time the investor that sticks with stocks the longest may be able to achieve the risk-adjusted return they need to build wealth. <\/p>\n More crises are on the way, for sure. But we believe stocks will ultimately do what they\u2019ve always done \u2013 move higher in spite of them. <\/p>\n","protected":false},"excerpt":{"rendered":" Not to be too alarming, but we strongly believe that a bear market is headed our way. We do not […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-7191","post","type-post","status-publish","format-standard","hentry","category-mitch-on-the-markets"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/posts\/7191","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/comments?post=7191"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/posts\/7191\/revisions"}],"predecessor-version":[{"id":8905,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/posts\/7191\/revisions\/8905"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/media?parent=7191"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/categories?post=7191"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/tags?post=7191"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
\nS&P 500 Performance: -22.61% (DJIA)
\nWhat Happened: Most remember Black Monday as the day that stock markets across the world crashed in utter panic, like a dark wave that crashed across the world. Causes for the crash are still debated today, from the impact of program trading to international disputes about exchange rates and interest rates, and fears about inflation. Once the selling started, however, it turned the reins fully over to investor psychology (panic selling).[1]<\/p>\n
\nS&P 500 Performance: -19% (from early July to mid-August)[2]
\nWhat Happened: As was the case with many crises in the 1990\u2019s, this one was related to currency devaluations, this time with the Russian government\u2019s devaluation of the ruble, where they also defaulted on massive amounts of debt.[3] Combined with the collapse of Long-Term Capital Management, the stock market felt extreme selling pressure in a short period of time.[4]<\/p>\n
\nS&P 500 Performance: -44.8% (total loss over 2.1 years)[5]
\nWhat Happened: Most are familiar with the rise and fall of dot-com companies that culminated in the March 2000 crash. Internet start-ups were rushing to IPO in record numbers and the supply of shares of companies with no positive cash flow flooded the market.<\/p>\n
\nS&P 500 Performance: Declined more than 10% in a little over 10 days[6]
\nWhat Happened: One of the darkest days in American history, the September 11 attacks on the World Trade Towers in New York caused the global stock markets to drop sharply. The attacks caused some $40 billion in insurance losses as well, making it one of the largest insured events ever. The attacks also occurred while the country was already in a recession, perhaps prolonging the recovery somewhat.[7]<\/p>\n
\nS&P 500 Performance: -50.9% over 1.3 years[8]
\nWhat Happened: The benefit of hindsight tells us that the housing market began its decline in 2005, and the subprime losses that followed in the years ahead ultimately led to the collapse of many large financial institutions that were overleveraged. The bricks in the wall started to crumble on September 16, 2008, when large institutions declared bankruptcy and the market plummeted day after day. It was a deep recession for the global economy with millions of jobs lost and trillions shaved off of global GDP.[9]<\/p>\n