It’s easy to view the glass as half empty, particularly when things seem like they may never improve. However, when it comes to long-term investing, it’s always important to keep perspective. Take a look at the chart below, which shows the market’s (i.e., the S&P 500 Index) 89% climb from its March 2009 lows. While the increase has not been uninterrupted (as shown by the three periods of a more than 10% drop), the declines pale in comparison to the rallies.
Periods of risk aversion, like the one we are having right now, are driven by a variety of factors. Current components include the situation in Europe, higher oil prices, the U.S. debit downgrade, and slowing economic growth in China. While these short-term “events” may cause volatility and push some to want to flee the stock market, the market has always proved to be resilient and to rally despite the challenges.
Let’s use this opportunity to look at the glass as half full. Each event-driven market pullback allows us, as long-term investors, to put capital to use through buying great companies at beaten down prices. Regardless of one’s age, having some allocation to stocks is almost universally necessary to accomplishing long-term financial goals.
This three year bull market in stocks needed to pause at some point. It’s a very common occurrence at this point in the cycle, no matter how much the 24×7 news media wants to make it out to be more than this. Your wealth managers at Woodward Financial Advisors are here to talk more about your specific situation should you be interested. In any case, we are not worried that the market declines of the last month or two are anything more than normal pauses in the eventual long-term upward trend of equity markets.