23 Jan Climbing the Wall of Worry
On December 31, 2009, the S&P 500 Index closed at 1,115.10.
Ten years later on December 31, 2019, the index closed at 3,320.78.
During the decade, the S&P 500 gained 198% on a price-only basis and 257% on a total return basis which includes the reinvestment of dividends.
As we turn the page on the decade, I think it’s worth revisiting a sampling of the litany of threats and ominous headlines the market overcame during the course of the decade:
- 2010: Greek sovereign debt crisis and bailout; Deepwater Horizon disaster; Arab Spring
- 2011: U.S. government debt downgrade; Syrian civil war; Japanese earthquake, tsunami and Fukushima partial nuclear meltdown; Occupy Wall Street movement
- 2012: Eurozone double-dip recession; Superstorm Sandy
- 2013: Taper tantrum
- 2014: Russia invades Ukraine; Ebola outbreak
- 2015: Oil prices decile sharply; U.S. dollar spike
- 2016: Brexit vote; U.S. political uncertainty and division
- 2017: Hurricanes Harvey, Irma and Maria
- 2018: Recession fears; 20% S&P 500 sell-off in fourth quarter
- 2019: Recession fears; U.S./China trade tensions; Brexit uncertainty; U.S. political uncertainty and division
It’s often said that the markets climb the proverbial wall of worry—a statement which refers to the market’s resilience with faced with potential stumbling blocks. No doubt the 2010s embodied this statement perfectly.
The bottom line is that there will always be scary headlines and uncertainty in the markets. One of the keys to successful investing is maintaining a long-term perspective and discipline in the face of uncertainty. An investor who held these traits during the past decade was likely well rewarded for their temerity. On the other hand, an investor who succumbed to fear and who sold in the face of any one of the threats du jour likely would have missed out on a significant portion of the market’s incredible gains (absent, of course, possession of the remarkable and extremely rare ability to successfully time selling and subsequent buying activity).
Experience has taught us that one of the most effective ways to promote this needed discipline and long-term perspective is for investors to hold a portfolio that is well calibrated to their unique financial circumstances and risk tolerance. For many, this means holding enough “safe” or “liquid” assets that are free from the vicissitudes of the market so as to enable them to recover from future down cycles without needing to sell stock holdings (which should rightfully be earmarked for long-term growth) to fund planned spending or out of fear about their ability to do so in the future.
All index return figures from Dimensional Fund Advisors
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S&P 500: Standard & Poor’s (S&P) 500 Index. The S&P 500 Index is an unmanaged, capitalization-weighted index designed to measure the performance of the broad U.S. economy through changes in the aggregate market value of 500 stocks representing all major industries.