As Normal as the Leaves Falling off of the Trees in Autumn

JP Morgan has released their quarterly Guide to the Markets and if you are a client of mine then you will be accustomed to this graph. This graph provides us with a ton of valuable information about the returns of the S&P500 (a stock market index that tracks the performance of 500 large companies listed on stock exchanges in the United States).

The grey bars show the annual return of the S&P500 in any given year. For example, we can look at the bar on the farthest right (YTD), which signifies 2021 from January 1 – September 30, and we see that the S&P500 had a YTD return of 15% on September 30, 2021. Now, look at the -5 red dot under that respective bar, which signifies the lowest point that the market achieved over that calendar year on a percentage basis. Look at the bar directly left (which signifies CoVid – 2020), we can see that the market achieved a fantastic return of 16% by the end of 2020 but experienced a decline that equated to -34% during the year.

Let’s zoom out a bit and look over the entire graph rather than focusing on one specific year. I would suggest that you do the same when you evaluate your investments because you are a multi-decade, potentially trans-generational, investor so the most recent Armageddon Du Jour that the media is latching onto shouldn’t be new to you; it’s one of the same from the past but simply rebranded. The entire graph shows the returns of the last 41 years and we can see that every single year (41 out of 41 years) the market was negative at some point in the year. Market negativity is normal and should be expected, the same way that the leaves fall off of the trees in autumn or plants begin to sprout in Spring, and anything different should be considered to be an anomaly or not normal. Market negativity at some point in a calendar year may be normal, but if history tells us anything then we should understand that market positivity is also normal. Over the same course of 41 years, the annual returns of the market were positive 31 out of 41 years (75% of the time). The market returned an average annual return of 9% per year from 1980 to 2020 and you can increase that average annual return to around 12% per year if you account for reinvested dividends.

As humans, we are hardwired to feel something and then believe that we need to act on our emotions. This instinct may have saved us when we heard foreign noises in the wilds of the past, when this noise was a threat such as a lion or other predatory animal. This instinct is also one that can wipe out decades of investment returns and put your future in jeopardy if you make the wrong decision at the wrong time. The market isn’t risky, human nature is risky.

If you believe that you are at risk of making an impulsive investment decision during stressful times, which we have determined happens every single year, then working with a professional can help you get through these stressful times.

“The four most dangerous words in investing are, it’s different this time.” –Sir John Templeton

Want to chat about it? Email me at info@financerx.ca