Recession? When, not if.
Since 1937, the US has experienced 14 recessions, or about once every six years. When we hear the question, “Are we going into a recession,” which happens a lot these days, the answer is always yes. We just don’t know exactly when. Or for how long. Or how severe it will be.
Assuming we could predict the next recession with amazing precision (we can’t), how would we change our investment approach? In short, we wouldn’t. What about long-term planning assumptions like inflation, tax rates, or growth? Nope, wouldn’t change those either.
Take a look at the data below. It outlines stock market returns leading up to and following the official start of each recession since 1937.
Long-term investors should continue to focus on the long-term:
• The stock market doubled in 7 of the decades following the start of a recession
• Three of the other periods were up at least 50%
• Only once did the market deliver negative returns, all the way back in 1937
Returns were more mixed in the short run, both leading up to and following the start of recessions. But returns are ALWAYS more mixed in the short run:
• During the 10-years ending July 31, 2022, the S&P 500 was down about 45% of all trading days.
• Despite nearly half of all trading days being negative, the market returned over 260% during this period.
We are heading into a recession. The timing, length, and severity are anything but certain. They always are. And long-term investors should look past those headlines and predictions to focus on other things. To the extent that you’re able, recession proof your job and income – be valuable at work. Have plenty of sleep-at-night savings in cash. Spend a little less and save a little more if that gives you comfort. Go outside and get some sunshine. Laugh with your family.
Interested? Reach out to DIVVI to continue the conversation.
Source: Divvi Wealth Management, Morningstar.
Opinions expressed herein are solely those of Divvi Wealth Management and our editorial staff. The information contained in this material has been derived from sources believed to be reliable but is not guaranteed as to accuracy and completeness and does not purport to be a complete analysis of the materials discussed. All information and ideas should be discussed in detail with your individual adviser prior to implementation.
