Staying the Course is Harder Than it Sounds – A Wealth of Common Sense

After suffering drawdowns of 21%, 25% and 35% in the bear market of 2022, the Dow, S&P 500 and Nasdaq 100 all broke even on a total return basis this week:

Sure that means these markets went nowhere for nearly two years but just look at the returns since the start of 2020:

Considering everything we’ve lived through those returns are not bad at all.

One of my least favorite phrases in all of investing is the easy money has been made.

Making money in the financial markets is never easy.

You’re forced to deal with constant uncertainty, volatility, fear, greed, and an endless stream of noise.

It only ever feels easy in the rearview mirror.

Just think about everything investors have had to deal with these past few years:

  • The pandemic caused us to turn off the economy for 1-2 months in the spring of 2020.
  • The unemployment rate shot up to 14%.
  • We had no idea how long the pandemic would last or when we would find a vaccine.
  • March 2020 was one of the worst months in stock market history.
  • Interest rates fell to historic lows.
  • Oil prices went negative.
  • We experienced the fastest bear market from all-time highs to down 30% ever.
  • Then stocks came roaring back.
  • There was a meme stock/crypto bubble.
  • Inflation came back from the dead to reach its highest level in 40 years.
  • We had a nasty bear market in 2022.
  • The Fed took short-term rates from 0% to 5% in a hurry.
  • The bond market saw its worst crash in history.
  • The 60/40 portfolio had one of its worst years ever.

For the past two years investors have been inundated with predictions of a recession, a repeat of the 1970s, stagflation, a housing market crash and worse.

None of these things happened.

It’s incredible how well things have worked out these past few years all things considered. There are no counterfactuals but things have turned out much worse.

Yes, the fiscal response from the government was immense but it wasn’t a foregone conclusion it would work. Certainly no one predicted this economic outcome ahead of time.

This was an economic experiment unlike anything we’ve ever tried before.

Inflation has not been fun to deal with but things could have been far worse considering Russia invaded Ukraine when prices were already spiraling out of control. Inflation could have been even more unpleasant than it has been if the global supply chain hadn’t healed in a relatively short period of time.

The Fed could have broken things when they raised rates from 0% to 5% so fast. The reason so many economists and pundits were predicting a recession in 2022 and 2023 is because we’ve never brought inflation down from such lofty heights without an economic contraction.

If you injected Jerome Powell with truth serum I’m guessing he would tell you there was no way a soft landing was possible 15-18 months ago.

The fact that we’ve done so thus far is an economic miracle.

Maybe we go into a recession or another bear market in 2024 or 2025 or whenever. It’s bound to happen at some point.

Regardless of how things turned out, I would like to give kudos to those who stuck with their investment plan throughout this ordeal.

If you dutifully dollar cost averaged in when stocks were falling give yourself a pat on the back. You did the right thing.

If you rebalanced your portfolio when stocks fell, great job.

If you rode out the losses without panic-selling at the bottom, nice work.

If you ignored the people who were screaming at you every day about how much worse things were going to get, outstanding performance.

If you kept your asset allocation in place when people on the Internet were trying to pitch you ridiculous investment options, good on you.

If you didn’t look at your 401k balance for the past couple of years, you’re better off for it in the end.

If you did nothing to your portfolio because that’s what your plan called for, I applaud you.

Look, the clock never runs out on the markets. The game never ends. Bull markets turn into bear markets which turn into bull markets and round and round it goes.

Everything is cyclical.

There will be harder times ahead at some point. There will be crashes that make the 2020 and 2022 bear markets look quaint by comparison.

But sometimes it’s nice to sit back and appreciate how you handled certain parts of the cycle.

Staying the course is harder than it sounds.

Further Reading:
Everyone is Irrational

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