Did I Miss It?
After September’s stock market ugliness, October (so far) has treated investors much better. Through October 26, U.S. large cap stocks are up nearly 7%. Small cap stocks[1] are up over 8%. For those that have been waiting to re-enter the market, they may be thinking, “Did I miss my chance?”
Before addressing that question, I want to quickly revisit what we have experienced so far this year.
2022 has been an emotional (and financial) ride for investors, with more downs than ups. The chart below shows two-week returns[2] for the S&P 500. This is now the 5th time this year investors have seen the stock market bounce at least 5.5% in just two weeks! Each of those periods are circled in orange.
Volatility tends to cluster, and the chart also shows similar moves to the downside in the brown bars below.
In my opinion, focusing on 10-day returns for stocks is borderline crazy. I am showing it here just to illustrate how difficult the mental part of investing can feel.
Investing is stocks seems much smoother when we zoom out. For example, here is another chart showing similar two-week returns, but this time going all the way back to the beginning of the 2000s. And, it includes the long-term growth chart on shaded in light green.
Hopefully this helps provide some context around the power of long-term investing. This is the difference between measuring in weeks and decades, and it can be staggering.
The S&P 500 has returned about 300% since the beginning of the 2000s. And that includes three pretty scary periods - the tech bubble bursting in 2000, the Global Financial Crisis in 2008, and the COVID-19 pandemic.
Now back to the original question: Did I miss my chance?
Unfortunately, we will only know with the benefit of hindsight. And for long-term investors, it might not matter as much as you think. Instead of stressing on short-term market movements or trying to pick the market bottom, here are a couple other ideas to consider:
Align investments with time horizon.
Long-term goals deserve investment portfolios designed to deliver strong long-term results. We believe timing market entry points become less important as time horizons extend further into the future.
Short-term goals deserve portfolios designed to deliver a greater degree of certainty in the near future. Regardless of how attractive stocks look today, predicting where prices will be in 6, 12, or even 24 months has proven to be extremely difficult for novice and professional investors alike. In our opinion, the potential return is not worth the risk of missing the goal entirely. Plus, many short-term investments finally offer returns above 0%!
Tailor your portfolio to match your personal style. We believe a good investment portfolio you can comfortably hold is much better than the perfect portfolio that you regularly want to sell. Having a thoughtful plan and strategy customized for your specific situation can help ease some of the stress that comes investing through down markets.
Interested? Please feel free to reach out to me at eric@divviwealth.com or set up time with the Divvi team to continue the conversation.
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.
