In August 2005 (as most of you probably remember), Hurricane Katrina devastated much of the Southeast along the Gulf of Mexico. As someone who was living in Southeast Louisiana, I remember the fear and anxiety that people felt toward any tropical storm or hurricane that neared our coast in the ensuing years. After a while, however, the “recency effect” of the storm seemed to wear off. For better or for worse, most people have moved on from the nightmare of Katrina.
In the same way, there is a tendency for investors to forget what it’s like to go through a bear market (20%+ drop). The last “technical” bear market happened in 2008 and 2009 when the S&P 500 dropped over 56% (although the 19.4% drop in 2011 constitutes a bear market in my book). Recently, however, there has been a lot of optimism and euphoria toward investing in the stock market. Part of this is due to the fact that the S&P 500’s total return year to date is over 9% (as of July 11th). The positive stock market returns feel so good that it’s easy to forget how badly a 56% drop hurts.
Although you may be tempted to change your investment allocation due to the recent performance of stocks, I would like to encourage you to stick to your current plan. Short term fluctuations in the volatile stock market should not change our long term investment strategy. Although I am a huge advocate for the long term investment returns associated with equities, I am also aware of the volatility in the stock market. Not everyone can stomach the rollercoaster ride of heavy equity exposure. Our team has found that the most effective strategy for long term investing begins and ends with a well-thought-out financial plan. Because of this, our primary goal is to help families develop a plan that they can stick to regardless of the volatility of equity investments.
If you would like more information about creating a financial plan specific to your family’s situation, please contact our office at (985) 727-0770 or email Andrew Stoner at email@example.com. https://www.yardeni.com/pub/sp500corrbear.pdf