We have all heard that when a bear attacks, the best thing to do is to stand still! Sounds simple enough, right? Well, it isn’t that easy. A few years ago I had the privilege of hearing Michael Dunn’s story on surviving a grizzly bear attack in the Grand Teton National Park.
Dunn was on a family vacation in the Tetons on August 14, 1994. He woke up before the rest of the family and quietly slipped out the door for a run. He saw signs of danger, but kept moving forward. He had made it just a couple miles on the dirt trail when he heard some branches snap. Suddenly, a large shape moved towards him, knocking him off his feet. He landed nine feet from the trail, where a 500-pound grizzly sunk its teeth into Dunn’s hip.
There was little chance for Dunn as he struggled. The bear clawed at his back, swiped at his neck, tore open his face, and almost stuck a claw right into Dunn’s eye.
The end seemed near and Dunn decided to play dead, which calmed the bear enough that it was distracted. Dunn’s survival was nothing short of miraculous!
Bear markets are not life threatening but can be financially devastating, especially if we make poor decisions. A bear market is typically defined as a loss of 20 percent or more. Smaller losses are often referred to as corrections because they are less damaging and could even be viewed as healthy market behavior. (After all, if stock values just went straight up then how could they represent value from real ownership of real companies?)
This summer, the S&P 500 officially hit correction territory with a 12 percent drop. These drops can be alarming, but often the best thing to do is to stand still. I have compiled more advice for these difficult times.
These corrections are normal and are to be expected. Remember 2008 and 2009? The financial markets melted down in a frightening manner, but then recovered to new highs. The current market is nowhere even remotely close to as bad as that was.
Trying to time the market by getting out at a high point and getting back in at lower prices is almost impossible. Most investors would be better off staying the course. Historically, the U.S. stock market has recovered from every correction and every bear market to eventually reach new highs.
Stock prices experience dips frequently. In fact, only 53 percent of days are positive. Positive months are only slightly more common at 59 percent.
Even though 10 percent corrections occur on average once every three years, the three-year return has been positive 78 percent of the time and the three year average has been a 24 percent increase.
Fortunately, bear markets are rare—occurring, on average, about once every six years. In fact, based upon history, an investor willing to diversify and weather the storms is four times more likely to make 20 percent than to lose 20 percent.
The real positive difference comes over longer periods as the positive numbers begin to compound. For example, over the last 50 years 74 percent of the calendar years have been positive for the stock market.
Over the same 50 years, the chance of losing 20 percent in a calendar year has been extremely rare—occurring just once every 17 years. (Bear attacks resulting in death have occurred once every 18 years on average in Yellowstone.)
Don’t fixate on your statement or the news. If checking your statement every day is going to make you feel like something needs to be done then try checking less often. It is important to stay in tune with what is happening in the world around us, but again, if the news makes you feel like you have to do something then beware. Good news is harder to find in the media, especially regarding financial headlines.
Look for opportunities
A market correction is a good reminder that risk is real. If you or someone you know has any doubt that their investments match their financial plan or their ability to accept financial risk, then come see an SFS Wealth Consultant.
When the market drops, some people get nervous and want to get out. Others welcome the fall as an opportunity to take advantage of better prices.
“Don’t put all of your eggs in one basket” is a classic phrase to describe diversification. Overall, history has shown this to be one of the most prudent ways to invest.
We don’t know if the current correction will grow to become a bear market. No one knows. However, we do have over 100 years of combined experience at SFS and we feel confident that the market will come back. Stay the course and your long-term results will not only help you survive, but you may even thrive.
*Research by SFS. Data from public sources. The S&P 500 is often used to represent the U.S. stock market. Calculations are based upon a 50-year history in this index. One cannot invest directly in an index. Investing involves risk, including potential loss of principal. Diversification does not guarantee positive results. Past performance does not guarantee future results. The opinions and forecasts expressed are those of the author and may not actually come to pass. This information is subject to change at any time, based on market and other conditions, and should not be construed as a recommendation of any specific security or investment plan.