Stock Market Deja Vu

By Jeff Headrick, Financial Planner

January, 2019

 

Do you remember where you were when the Twin Towers fell? Just about everybody in the world can tell you precisely what they were doing at the time this catastrophic event happened.

If I ask you what you were doing in the fall of 2008 when the Great Recession began your memory may not be so succinct. But if you were a financial advisor at this time your memories of this crisis are probably as vivid as if they happened just yesterday. I know mine are.

When you manage other people’s money for a living, events like this become palpable. I can’t speak for all of the other advisors in the country, but I can tell you unequivocally that I bare a few scars from 2008.

Like any event in history, we can learn from these great moments. There’s no teacher like experience. Which leads me to today’s post. Am I the only one that feels that the current economic climate is somewhat reminiscent of 2008?

Stock Market 2019

Already in 2019, we are hearing a deluge of positive and negative talk speak coming from the television. Some experts say that there will be rocky waters in 2019. A lot of the economic research that I have studied shows that some economists think that there is a possibility of an economic downturn later this year, which looks even more possible in 2020. Nobody knows.

But my instincts tell me that 2019 could be similar to 2008 in many ways.

Stock Market 2018

While we really have no idea exactly what the market will do in 2019, the results are in for 2018. And the results show that the S&P 500 was down about -7%. This -7% is not a weekly or even a monthly downturn. This is a measurement of performance over an entire year of time.

By now you should have received your quarterly statement for your 401(k), 403B, IRA, etc. This might be a good time to pull up that most recent statement and see how you did. If your portfolio was down -7 to -9%, then this was about par if you had some international equity exposure.

I often hear from prospective clients that their portfolio is not doing good. After all that’s why they come to see me! But I like to be challenged and I like to challenge others, so I often ask: Compared to what?

Because the truth is, if your portfolio was down about -7% and you are 100% invested in US stocks, this was a pretty good year for you. Most studies show that it’s nearly impossible to beat the market. What you can do is diversify into multiple equity asset classes as well as bonds, and by doing so buffer your portfolio to some extent from precipitous losses.

Stock Market 2008

Flash back to 2008. When the Financial Crisis of 2008 became glaringly obvious it was in the fall of that year. At that time, it became clear that not only had the real estate market collapsed, but that the stock market was collapsing as well.

Only the most conservative portfolios were able to whether such a storm. If you had made adjustments in 2007 or early in 2008 to a more conservative posture, you were well rewarded. If you didn’t your returns were probably—well— average. And by average your portfolio may have been down -30% or -40%.

S&P Performance

Graph shows S&P 500 index in blue, the DOW Jones index in red. Source: Yahoo Finance

At the time, I believe most of us felt like the market crash was starting. But what we have  learned over time is that the slow unwinding in 2007 that had barely gathered much attention on Wall Street, was actually the beginning of the whole process.

2007

While history will show 2008 to be the worst year of this crisis, it will also show that this negative downturn started twelve months before, in the fall of 2007. If you look at the graph above it’s very clear that the market had started unwinding in 2007, not 2008.

Why is this relevant? It is relevant—or at least might be—because the -7% stock market turn in 2018 could be a harbinger of things to come. Just look over your shoulder at the last 12 months and determine for yourself what the state of things are at the present. Don’t be dissuaded by the short-term opinions of others who are selling air-time for a living. Think your own thoughts. Do your own research, or hire someone you trust to do it for you.

Stock Market Related

Bear Market on the Horizon

Three Ways to Prepare for a Stock Market Crash

Your 401(k) and the Efficacy of Asset Allocation

 

Thanks for reading and if you enjoyed this post let us know it. You can always reach us in North Carolina at (910)448-1450, or in Tennessee at (865)604-2846. Whether you are an investment professional, or a layperson with a passion for building a quality portfolio, please don’t keep your thoughts to yourself. We can all learn from one another.

 

About the Author

Jeff Headrick is an independent financial planner and wealth manager with Inspire Financial Planning. When Jeff was still in his teens his father died unexpectedly. While his father was a hard worker and a good provider, he did not have the best financial plan in place when he died. This personal experience, coupled with being inspired by Sir John Templeton, Warren Buffett, Dave Ramsey, and the laws of compound interest, prompted Jeff to enter the financial services industry in 1999. He has been helping people with their financial planning ever since.

Jeff lives in Wilmington, NC with his wife and two children. He spends most of his spare time just across the Intracoastal Waterway in Wrightsville Beach, enjoying the beauty of the NC Coast.

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