In response to this my investing strategy is unchanged despite having lost, on paper at least, over £53,000 from my peak 2015 wealth valuation even after new contributions. That is multiple years of post FIRE spending and so not an insignificant amount of money. I continue to passively rebalance but importantly everything is done in slow motion and contains no ‘backing the truck up’ or ‘going all in’. I think of it as investing at the pace of a sloth.
I do this because even though there is lots of investing noise around I am very conscious that price down trends can occur for long periods of time. Let me demonstrate with a chart looking at US stock market price downtrends.
Click to enlarge, US Market Percentage Falls from Real New Highs
This chart shows 4 bad bear markets that have occurred since 1900. In brief these are:
- A new real (inflation adjusted) price high was reached in September 1906 which then led into the 1907 Bankers Panic (marked in purple on the chart). From the high it took until December 1920 to reach its real low of -70.0%. That’s 171 months or 14 years and 3 months for prices to bottom in real terms.
- A new real price high was reached in September 1929 which then led into the well known Great Depression (marked in blue on the chart). From the high it took until June 1932 to reach its real low of -80.6%. The decline to the real low was reasonably rapid at 33 months or 2 years and 9 months. What’s interesting with this period though is that even 20 years later the market was still more than 60% below the previous real high and didn’t actually reach a new real price high for more than 29 years.
- A new real price high was reached in reached in December 1968 which then led into the stock market crash of 1973 to 1974 which came after the collapse of the Bretton Woods system and also incorporated the 1973 Oil Crisis (marked in olive on the chart). This time from the real high it took until July 1982 to reach its real low of -62.6%. That’s a period of 13 years and 7 months.
- Finally, a new real high was reached in August 2000 which led us into the Dot Com Crash and before we could recover we were straight into the Global Financial Crisis (marked in red on the chart). Over this period the real market fell 58.6% by March 2009. That’s a period of 104 months or 8 years and 8 months.
- Markets can trend down a long way. This is no secret and talked about frequently.
- Markets can take a long time to reach bottoms after previous highs. This is less frequently discussed but an important point.
As always DYOR.
- Inflation data from the Bureau of Labor Statistics. August 2015 inflation is extrapolated.
- Prices are month averages except August 2015 which is the S&P 500 closing price on the 28 August 2015.