Is the Stock Market Due for a Crash? Why Your Financial Plan Matters More Than Predictions

Hello,

Is the market ever going to go down?

Something I was talking about with a group of Advisors recently is that it seems we have grown apathetic to the market returns we have experienced over the last decade.

As I write today, it is hovering around 7,600.

It has 11X'ed in about 17.5 years.

If you look year by year, it's pretty remarkable we have only had 2 out of the last 17 years post a negative return.

And really only 1 "painful" year in 2022.

The compounding rate over this time frame has been about 15%.

Given the historical rate has been about 10%, it's worth illustrating what a 5% difference in return means.

Let's say you invested $100,000 17 years ago. At 15% annual returns your value today is right above $1mil. At 10% annual returns your value today is $505,000. Now compare the above timeframe to the prior 10 years, 2000 - 2009:

3 painful years in a row to start the decade. Followed by one of the worst market returns in history just a short 6 years later.

Over this timeframe of a DECADE the market went up a TOTAL of 12%. And over the last 17 years we have AVERAGED 15% per year.

So what's the point of all this? I don't think we really appreciate what has happened in the market the last decade and a half.

I bring all of this to your attention so that we don't get complacent, apathetic, etc.

To be clear, I'm not some pessimist who thinks we need to change our plan or worse change our investment strategy.

My whole point of this article is to get ahead of someone who might be thinking we SHOULD do that.

When I begain this career in 2013, nearly EVERYONE was saying "Well it's been about 5 years since the last crash, one is due any day now."

And besides for 2018, where we had a decline of 18%, that prediction of a crash has never come true.

While you may be thinking we have only had about 1 painful decline in the last 17 years, NOW is the time to get out before the next one.

I think that is the mistake one can make. Your plan should not be dictated by a prediction.

Your plan should have preparations in place where if a crash does come, you have plenty of cash to ride them out, for example if you are in retirement.

But for the younger investor, the person still accumulating, a crash is simply an opportunity to buy up more shares of great companies at better prices.