The boom and bust of markets of 2021-22 need to be understood with perspective. Both the rise and fall in markets are just “moments” in the life of one's portfolio.
At this moment, it would be easy for investors to throw up their hands in resignation and simply refrain from investing altogether. We have recently seen a currency crisis in the UK and a market tumble due to the Fed’s “get tough on inflation” policies. We are in “bear market territory” again.
Markets have dealt investors a pretty rough hand so far in 2022. A continuous patter of market-churning news paints a picture of stubbornly high inflation, tightening monetary conditions, a slowing economy and disrupted global energy supplies.
Citi Global Wealth Investments raised the chance of recession in 2023 to 70%. So why not just sit this one out? That may not be wise because, historically, there are many reasons why “going to cash” is a costly decision over the long run.
The first of these is the loss of value creation on the market’s best days. Great “up days” can happen at any time, of course, but often occur around market turning points. If we look back to January of 1990, a period of 11,961 calendar days encompassing approximately 8,258 trading days, and one misses just the top 10 trading days for the S&P during that period, the loss of potential value would have been more than 50% of the total return for the entire period.
The period from 2020-2022 has seen eight of the top 50 trading days since 1990. While we have no way to predict when or how big the next set of “top days” will occur, based on historical market data it is likely that at some point before the economic downturn reverses, markets will. And with that pivot toward recovery may come some of the days investors cannot afford to miss.
In this CIO Bulletin, we look backwards to look forwards and offer a few words for the wise as we consider investing through turbulent times.