Broker Check
Staying Invested

Staying Invested

January 31, 2024

January 2024  

Staying Invested 

Throughout history there have been many times where it seemed prudent to exit the market. Today there is no shortage of bad headlines and reasons not to invest. The optimal action for long-term investors has always been to stay invested. While selloffs can be quite painful, the act of timing the market necessitates two correct decisions: when to exit the market and when to re-enter. In this post, we will look at some events over the past few decades when the prevailing sentiment was to sell or exit the market.   

One event was The Savings and Loan Crisis that started in the late 1980s and led to a recession in 1990 which lasted eight months. Approximately one-third of all savings and loan institutions failed from 1985 to 1995. These S&Ls were established as financial institutions to accept savings deposits from customers and make consumer loans to their members as well. While inflation in the late 1970s rose rapidly, the Federal Reserve raised its lending rate to banks (called the discount rate) from 9 ½ to 12% in late 1979. At the time, S&Ls had many long-term loans outstanding at far lower fixed rates, and when borrowing rates increased the S&Ls could not attract adequate capital from the savings accounts of their members. Attempts to attract more deposits by offering higher interest rates led to liabilities that could not be covered by the lower interest rates at which they had loaned money. This resulted in about one third of all S&Ls becoming insolvent, as many of them had pursued highly speculative investment strategies to make up the shortfall. Since 1990, the S&P 500 total return was approximately 1,290% or 8% annualized. 

The 2008 Housing Crisis started in December 2007 and lasted until June 2009. This was a time of great concern, as lenders of subprime mortgages began to shut down. Despite the Federal Reserve Board’s attempt to calm the waters by drastically lowering interest rates (eventually to an historic 0%), further dismay came in March 2008 with the collapse of Bear Stearns, a major investor in subprime mortgages, followed by the closure of IndyMac, a major mortgage lender, and finally the bankruptcy of Lehman Brothers. The Dow dropped to its lowest level of the Recession in March 2009, a historic drop of over 50% from its all-time high set in October 2007. Since December 2007, the S&P 500 total return was approximately 230% or 7.7% annualized. 

More recently, in early 2020, the Covid crisis struck the globe. The pandemic was a global healthcare crisis. The market sold off aggressively starting that February, eventually bottoming on March 23rd. At the time, there was no shortage of financial news outlets reporting the stock market selloff. Many investment industry experts were urging viewers to move to cash. Despite this, by August of that year the US stock market had recovered from the March losses. Ultimately, S&P 500 gained just over 18% for the year, quite a robust annual investment gain. Since February 2020, the S&P 500 total return was 51% or 10.9% annualized. 

In closing, there have been countless times throughout history when it seemed smart to sell and exit the market. Below is a list of many of those events. Despite all this, the US stock market continues to prevail. In late January 2024, the S&P 500 hit new all-time highs for the first time in over two years. Looking ahead, we are optimistic the US stock market will continue to prevail. There will be event-driven selloffs, which can be emotionally painful, but the smart move historically has been to stay invested in great American businesses. And that is our plan. 

 

Note: Past performance is not a guarantee of future results  

  

  

Reasons To Not Invest 

  

1986    Space Shuttle Disaster and Meltdown of Chernobyl 

1987    Black Monday Stock Market Crash 

1988    Pan Am Bombed over Lockerbie, Scotland 

1989    Savings and Loan Crisis 

1990    Persian Gulf War 

1991    Collapse of the Soviet Union 

1992    Los Angeles Riots 

1993    World Trade Center Bombing 

1994    Orange County, CA Bankruptcy Filing 

1995    Oklahoma City Bombing 

1996    U.S. Budget Crisis and Government Shutdown 

1997    Avian Bird Flu 

1998    Russian Financial Crisis 

1999    Y2K 

2000    Dot Com Bubble Burst 

2001    September 11th Attacks 

2002    WorldCom Collapse 

2003    Iraq War 

2004    War on Terror Continues 

2005    Hurricane Katrina 

2006    U.S. Home Ownership Begins to Fall 

2007    Housing Crisis 

2008    The Great Recession 

2009    Stock Market Collapse 

2010    U.S. Poverty Rate Hits 15-year High 

2011    Japan Earthquake and Tsunami 

2012    Hurricane Sandy and The Fiscal Cliff 

2013    U.S. Government Shutdown 

2014    Oil Prices Collapse 

2015    China Economic Slowdown 

2016    Brexit 

2017    U.S Political Theatre 

2018    Trade War 

2019    Presidential Impeachment 

2020    Covid-19 and U.S. Election 

2021    Supply Chain Slowdown 

2022    Inflation 

2023    Interest Rates 

2024    ?