Coming into the year, we were inundated with predictions of recession and mass layoffs. Remember all the talk about Google, Facebook, Microsoft, and Amazon layoffs?
Higher yields and increased economic uncertainty caused money managers to believe stocks were unattractive and declare 2023 “The year of the bond.”1 Barron’s reported that market experts were expecting a selloff in the first half of the year.2
Over the last six months, we experienced a few bank failures and a host of predictions that things were going to get a lot worse. The market sold off swiftly, but briefly.
So How Did We Do?
Despite all the concerns, bank failures, and dire predictions, the S&P 500 Index is up over 18% year to date.3
And now the tune has changed! Barron’s went from headlining “Be Ready For a Drop” at the beginning of the year to, “This Market Has Legs.” But does it have legs? Will it keep going up? Who knows.
What We Know
What we know is that historically the market goes up much more often than it goes down. In fact, since 1928 the market has gone up more than 20% in a year more often than it has experienced a calendar year loss (of any degree).4
We also know that trying to guess when to get in and out of the stock market can have very costly consequences. Missing just a few market rallies can drastically impact the growth of your wealth. Consider the following case study:
If you were invested in a portfolio that resembled the S&P 500 Index from January 1, 2003, to December 30, 2022, you would have received an annual return of 9.8%. This means if you started with 1 million dollars invested, you would end up 20 years later with 6.4 million dollars. However, if your portfolio had been sitting in cash on the 10 best days of that 20-year period, your annual return would have dropped from 9.8% to 5.6% – leaving your portfolio with an ending balance of only 2.9 million dollars. This means that missing the 10 best days in the market would have cost you 3.5 million dollars! The most disturbing part of this is that seven of the 10 best days occurred within two weeks of the 10 worst days.5
So, what did we learn from the first half of 2023? We learn that market experts were once again wrong. We learn that surprises happen, and even if we know what will happen ahead of time (which we don’t!), it is impossible to know how the market will respond.
And that is why the best investment advice I can give is to have a solid financial plan that guides your decisions.
- BusinessWeek, Jan 11, 2023
- Barron’s, Dec 19, 2022
- Total Return through July 17, 2023
- Ben Carlson, Wealth of Common Sense, June 24, 2023
- J.P. Morgan Guide to Retirement 2023
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