Keeping the faith

Dear Client

The stock market continues to waver causing extreme emotional and financial trauma to many Americans, especially those approaching or already in retirement. We are all bombarded with the incessant debating by the shouting heads on cable news channels and other media sources who profess their opinion of the nature of the crisis and the myriad of possible solutions. You have every right to feel anxious, afraid and extremely fatigued. To feel a temporary loss of confidence in Wall Street and the media may be very well justified, but at some point in the future, these temporary fears will subside and the logic, reason and discipline of long-term investing will return.

You have probably spoken with your coworkers, friends and family, and those conversations may have you feeling like you have had enough and just want out. You may just want certainty about what you have in exchange for abandoning the understanding of the investment principles that create long term, real wealth. The solutions that seem right for your friends and family may not, and probably are not, best for you. That is why it is important, now more than ever, for you to keep the faith and rely on the facts.

The facts are that we have experienced harsh economic and financial events over the past year, the likes of which we haven’t seen for decades. But looking at our nation’s financial history you would see that we have always recovered, even from worse times, and the prosperity created afterwards was far greater than the prosperity leading up to the crisis.

While the eventual outcome and timing of a recovery in today’s markets is uncertain, history can provide an important perspective to help us get through this emotionally trying time. Since 1950, there have been nine bear markets. Based on the average of those nine bear markets, the typical decline lasted around 14 months and the typical recovery (from trough to peak) took 26 months. While past performance is no guarantee of future results, in the 12 months following bear market troughs, we have previously seen above-average market performance, with one-year stock returns averaging nearly 46 percent¹. What does all of this mean? Since equities tend to rally before the end of the recession, a market rebound could be in the not-so distant future.

Given these facts, the most difficult part is waiting and allowing the economy to work out its problems. The market turmoil and economic crisis is incredibly frightening for everyone, even the most seasoned and disciplined investors. But do not let your emotions make your investment decisions. We must lock up our emotions and allow our minds to rule our behavior. Those investors that do so will be in a better position to reap the benefits of a market recovery.

We may not know when or how the economy is going to recover, but when it does happen you must be in the market to participate and take advantage of the full market recovery. Stay focused on your investment goals. Trying to time the up and downswings of the market could cause you to regretfully miss out on regaining the value of your financial assets and could significantly harm your overall financial future.

I am here to help you better understand the current situation, educate you on the history of the markets and the U.S. economy, and discuss the essential behavioral drivers of prosperity and wealth. Most importantly, I can help you keep your sights set on achieving your investment objectives and honoring the important promises you wish to make in life.

Please contact my office today at 858.752.1726 to schedule a review of your investment portfolio.

Sincerely,

 

Dion Gouws, CPA

1 Fidelity’s Market Analysis, Research, and Education (MARE) group. "Bear Necessities: Down Markets Often Breed Opportunity." Fidelity Investor’s Publications. 23 October 2008. Fidelity Investments. 18 February 2009. <http://publications.fidelity.com/investorsWeekly/application/loadArticle?pagename=IW081023bearmarkets>.