After a long hiatus in the stock market, investors are being re-introduced to pain – not just to a stock market where values bounce up and down a lot, but to account values that can slide lower, week by week and month by month. These losses hurt. Despite the positive fundamentals of strong corporate earnings and low unemployment, concerns about the pace of Federal Reserve interest rate increases, Brexit, trade tensions with China, and fears about growth stalling and the economy shrinking (recession) are weighing on the markets. And all of these major asset categories – even bonds - are down so far this year (Jan. 1 – Dec. 18, 2018):
S&P 500 (500 largest publicly traded companies): -2.94%
Dow Jones Industrial Average (30 large companies): -2.04%
Russell 2000 (Small U.S. Stocks): -9.21%
MSCI EAFE (International Developed Stocks): -13.24%
MSCI Emerging Markets (Emerging Markets Stocks): -16.87%
Barclays Aggregate Bond Index (Broad Based Bond Index): -0.48%
Obviously, the future of the stock market is not predictable. The knee jerk reaction to “get out” is tempting, but has been wrong countless times when markets dropped (sometimes for a few minutes or hours; sometimes for literally years) but then recovered and rose to new highs. Stock market success is earned in times like these. As frustrating as investment declines can be, these market declines remind us why the discussions of risk, goals, and our time frame for investing that we have with clients are so important. They allow us to invest up front in such a way that when we’re looking at a statement showing the inevitable short-term losses that investing will at times deliver – we can take a deep breath and relax. We prepared for this.
As we approach year-end, we reflect on how it takes a lifetime of hard work and discipline to build a fortune. It takes years to build trust with your spouse, family, and friends; decades to raise a child; decades to pay off a mortgage; many years to build a good reputation. There is a risk in life and when investing, that during good times as our accomplishments mount or our account balance grows, we can get “too comfortable.” It is easy to take our progress for granted, and feelings of overconfidence or even pride can set in. C.S. Lewis writes “Pain is God’s megaphone to rouse a deaf world”. It is natural for us to take good times, good health, good weather, and smooth sailing for granted. Loss and pain are very good at humbling us, reminding us of where we came from, and instilling gratitude for all that we do have.
As we approach the holiday season, may the cold outside make us grateful for the warmth inside, the shortness of life create in us urgency to live with adventure and meaning, and that dip in our account balance cause us to reflect on how blessed we truly are. Call an old friend, help a neighbor, and let’s give of ourselves in new and meaningful ways. Have a blessed holiday.
Ellie and Santa