If you are not already one of the people asking me, “What do you think about the rest of the year,” it is likely you will have it at the top of your list of questions when we speak next.
I want to take some time to address this question and set some expectations for what may occur in the second half of 2014.
Other than the two month bear in 1998, whose tail end five year return was impacted by the dot-com bubble, and the period from 1968 – 1970, the recovery of the market is undeniable. Though I could have used other period lengths, the five year number provides a level of confidence coinciding with the segmented, or bucket approach to allocating monies.
I have additional data that demonstrates the Year 1 and Year 2 market recovery immediately following the bear market. What you would see is that if you pull out of the market…you’ve missed it. It is in the first 24 months where most of the recovery occurs (Year 1 average of 36% and Year 2 average of 12%). As a result, your best laid plans for long term investing have been quashed by short term actions.
Yes, I am okay with this approaching market decline, because I know that a market decline can act as an opportunity for stocks to be cheaper to purchase. The money managers we employ count on these declines so they do not overpay to own a company.
No, we should not sell your equities. You have cash and fixed income to cover your objectives in the next several years. If your personal needs change, we should address a change based on those. Furthermore, you would have great difficulty picking the exact right time to get back in, hence, missing on the initial recovery discussed above.
And yes, I will continue to view your entire financial picture as primary. You will have money in cash, fixed income, as well as equities, in order to meet your short, mid and long term goals. I will give consideration, that is strong consideration, to the monies you have in equities, and how it will help you achieve adequate long term growth to maintain your standard of living over multiple decades, not just in the next six months.
Finally, I am not suggesting a bear market is imminent this year. Bear markets usually occur when the economy is in recession and unemployment is high, or when inflation is rising quickly.
I look forward to our discussions in the second half of 2014 and thank you for your trust and confidence.
Author: David Jeter, CFP®, Allegheny Financial Group, July 2014
1 The S&P 500 Index is a weighted, unmanaged index composed of 500 large cap stocks. It provides a broad indicator of stock price movements. Investors cannot invest directly in an index.
2Data Source: Standard and Poor’s, FactSet, JP Morgan Asset Management.
Securities offered through Allegheny Investments, LTD, a registered broker/dealer. Member FINRA/SIPC.
The above comments are provided for discussion purposes only and are not meant to be an offer of any specific investment.