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Smart401k Blog

Archive for October, 2008

Stick to Your Gameplan

Thursday, October 30th, 2008
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Over the weekend I went to my first Missouri (MU) football game.  Prior to the game I had the opportunity to tailgate with a lot of MU fans, the majority of them I didn’t know.  Being a diehard KU (Kansas) fan I expected a lot of razzing and friendly bickering.  Instead, once people found out what I did for a living, football was the last thing people wanted to discuss.  Instead everyone wanted to talk about the market and their retirement accounts.  It seemed everyone I spoke to was unsure if they were properly allocated and if they should be moving their money to cash accounts.  I would explain to them that it’s a tough time to be in the market, and watch our accounts go down, but believed we have to remain committed to our investment strategies (assuming they are based on solid asset allocation strategies).  Historically, the market has rebounded strongly after reaching a trough.  On average it rebounds by approximately 30% within 12 months after finding the market bottom. Within two years of the hitting the market bottom, the S&P 500 average increase is roughly 55%.  These figures really got their attention. 

It was very important for them and for you to understand that no one can predict what the future will hold so it’s imperative to have a properly allocated and diversified investment strategy based on your risk tolerance and time until retirement. This doesn’t mean picking all the funds available to you, but rather building a portfolio that includes all the major asset classes (Lg Cap, Sm Cap, etc).  For someone nearing retirement age, they should probably be more conservative, while someone with 20 or 30 years until retirement can stand to continue to invest more aggressively.  

I know it’s tough with how the market is, but now more than ever it is time to have a good game plan and stick to it.  People should approach investing like coaches approach football games.  Coaches set a game plan going into the game and stick to it.  They review hours upon hours of game film and monitor the strengths and weaknesses of their team and opponent and create a strategy that gives them the best chance of success.  During the game, coaches make minor adjustments, but don’t throw their game plan out the window at the first three-and-out or turnover.  It seems people create game plans but then throw them away at the first signs of market turmoil.  If you’re not sure how to come up with a game plan for your retirement or are worried that your game plan doesn’t fit your retirement goals, feel free to contact us to talk through your situation. 

Needless to say, the football analogy connected with a lot of the people I talked to and I had a lot of new friends. Unfortunately for me, they were all MU fans.      

As always, if you have any questions or would like to discuss your account, feel free to call us at, 1-877-627-8401.

Jeff Studebaker, Investment Advisor

Economic Crisis – Mortgage Backed Securities

Monday, October 27th, 2008
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In my previous post on the current financial crisis, I reviewed the players involved in the crisis.  I also covered how an overheated real estate market and lax lending standards were the tinder that helped fuel the financial crisis we’re now smack in the middle of.

In this post I’ll talk a little bit about what happened to all of those mortgages once a borrower closed on a house/apartment/condo and how they added to the fire.

Historically, banks originated loans and held them on their balance sheet as assets.  They made money by lending at a higher rate than they paid on customers’ deposits.  Since the banks were holding the loan on the balance sheet (i.e. they were hurt if the loan went into default or otherwise underperformed) they were generally very selective in the loans they made.  This began to change when many of these banks and other lending institutions began to sell the mortgage loans they originated to financial institutions who would package them into mortgage backed securities (MBS) a type of asset-backed security

These structured securities allowed the originating bank to book a profit on the loan quicker and also freed their balance sheet and enabled them to make more loans.  Since the originating bank was no longer at risk if the loan went bad many began to relax their lending standards.  In order for banks to sell their loans, the loans just had to meet the minimum standards of the Federal Housing Administration (FHA) — an entity whose stated goal was to boost the rate of homeownership in the United States.

Financial institutions then created the MBS and sold them to institutional investors who desired a “stable” asset that produced a regular level of income.  The idea behind mortgage backed securities was that if you pooled a large enough number of mortgages you were actually decreasing your overall risk by diversifying through large numbers of individual loans and over various geographic areas.  In other words, one bad loan wouldn’t ruin your day.

In addition, mortgage backed securities were divided into “tranches” based on risk level and interest rate, allowing buyers to make purchases based on level of risk they were willing to accept.  The process for rating these tranches was similar to other fixed income securities. Rating agencies like Standard & Poor’s and Moody’s would give the tranches with the least risk investment grade ratings (think GE and Berkshire Hathaway debt), while slapping lower ratings on riskier tranches.  So in many cases, a pile of high risk sub-prime loans were magically turned into supposedly high-quality, investment grade fixed income securities.

After securitizing and selling the loans, these financial institutions were able to buy more loans and repeat the process over and over again.  As the real estate market continued to boom, all parties involved got hungrier and hungrier for more and more loans.  Everyone involved was happy until the real estate bubble started to deflate.  As defaults began to rise, the buyers of the MBS’s started to see losses that they weren’t expecting to see from such a supposedly high grade security.  Buyers quickly stopped buying the MBS’s, sticking the financial institutions with a bunch of unsalable mortgages. That caused the financial institutions to stop buying new loans, which in turn meant that the originators had to hold them on their balance sheets and quickly curtail their new lending.  In the end, this meant that a new home buyer suddenly had a lot more trouble finding a loan, which helped slow the pace of home buying.  With new buyers kept at bay, home prices started to fall and those who had overextended themselves to buy a property found themselves without clear path to safety.  It’s not too hard to see how this situation can feed on itself and create a downward spiral.

So now we have between $1 and $1.5 trillion dollars in sub-prime mortgages that no one wants and a large number of buyers who can’t keep up with the payment on loans they shouldn’t have taken out. The result? A frozen market.  Individual and corporate balance sheets are now full of loans they don’t want, which restricts their ability to spend or lend additional money.  And the spiral continues…

As always, please feel free to add to the commentary and ask any questions you might have.

Scott H

A Week in the Rearview – week ending 10/24/08

Saturday, October 25th, 2008
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In the headlines

A look at some of the market movers over the past week:

Commentary

The market stats for the week were all too familiar for investors. Three out of the five days were down days, four out of the five days had moves of 3% or greater, and the week finished down just shy of 7%.

News-wise, coverage focused on the worldwide economic uncertainty. Though financial markets appeared to loosen up to some extent sparking a big gain on Monday, economic reports throughout the week — including a decline in third quarter GDP in the UK — were sobering. Earnings reports throughout the week were mixed, though even positive reports were overlooked by investors as they continued to focus further into the future.

At this point it is unclear exactly where the market is taking its direction from. Down more than 40% from a year ago, it would seem that even a significant recession has already been priced in. Reports have been making rounds that significant liquidation selling from troubled hedge funds has put downward pressure on markets, while even healthy hedge funds and mutual funds may be selling in anticipation of investor redemptions. At the same time, individual investors, worn down from the market’s wild volatility, may finally be throwing in the towel and selling.

Looking ahead

Last week I began this section by saying:

The more volatile and emotion-driven the markets become, the more difficult it is to predict what factors will play significant factors in its movements. That said, the news events that will cause the most commotion on the markets next week will likely be those that are unscheduled such as new information on the bailout progress.

It’s hard to come up with something more applicable this week. Volatility has continued and we’re somewhat at the mercy of a spooked market right now. Investors will continue to process economic data to try and figure out just how bad the economic downturn will be.

That said, at a time like this it’s important to keep in mind that the stock market and the economy do not typically move coincidently. Economic readouts give us a picture of current and recently passed activity levels. The stock market, meanwhile, tries to anticipate economic activity in advance. This means that stock market declines will precede the bottoms of economic declines and stock market recoveries will likewise precede economic recoveries. So even if the economic picture gets worse from where it currently stands today, that does not necessarily mean that stock market will.

Going into next week we have a heavy calendar on both the earnings and economic fronts. There are a handful of economic reports that could significantly impact the markets. On Monday and Tuesday we’ll see September new home sales and October consumer confidence, respectively, and both are expected to show declines from the prior month. On Friday we’ll see personal income, personal spending, and another reading on consumer sentiment.

The two highlights of the economic calendar, however, will take place right smack in the middle of the week. On Tuesday, the Federal Reserve will make its October policy statement. Based on implied probabilities calculated by the Federal Reserve Bank of Cleveland, the expectation is that the Fed will cut rates by anywhere from a quarter point to three quarters of a point. The following day, an advanced reading on third quarter GDP will be released. After a jump of 2.8% (annualized) that was driven by government stimulus payments in the second quarter, the briefing forecast is for an annual rate of 0.3%, while the market is expecting a decline of 0.5%.

Week after week we will continue to bring you a weekly recap and a look ahead to the next week. However, it’s important that our weekly coverage of news and events is not translated as a short term focus from an investing perspective. We continue to be firmly focused on the long term when it comes to investing, and while the current period is certainly trying, we expect that investors holding their investments, and continuing to invest, over the next five to ten years will benefit handily from the eventual market recovery.

Advisor Viewpoint – Performance of High-Yield bonds

Friday, October 24th, 2008
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This year has been a rather tumultuous year for investors, with the past month being extremely volatile. The Dow Jones Industrial Average is down more than 35% year-to-date as of Oct. 24. I believe fear has been responsible for a significant portion of the market’s return as investors are overly focused on the health of both our financial system and the economy. I like all of the advisors at Smart401k read and learn as much about the market as we can. One of the things that I have noticed has been the steep selloff in the high yield bond market.

For those of you that are not familiar with high yield bonds (aka junk bonds), they are corporate bonds that have been assigned a credit rating below investment grade by Moody’s or Standard & Poor’s (The two main credit rating agencies).  Bonds with a credit rating of BBB or lower from S&P and Baa or lower from Moody’s are considered high-yield bonds.  Because of their lower credit rating, these bonds generally pay a higher yield than investment grade bonds.  (For more information on bonds click here)

Similar to the stock market, the high yield bond market has been plagued by fear.  This fear has resulted in a steep decline, approximately 25% YTD as of Oct. 24th, in the Merrill Lynch High-Yield Master II Index, a common benchmark for the high yield bond market.  According to Moody’s, the market has priced in a rise in the default rate to almost 20% which would top the record of 15.4% set during the Great Depression in 1933. The uncertainty in the market has also pushed the yield spread over U.S. Treasuries from around 3% a year ago to over 15%.

A number of bond fund managers, including Dan Fuss from Loomis Sayles, have observed the decline as well and see the current market as an investment opportunity. Mr. Fuss recently gave an interview with Morningstar and said that the current bond market is the best buying opportunity he has seen since 1974.

Please note, I am not advocating or a recommending high yield bonds but rather wanted to write about an observation of recent events. Please feel free to contact us if you have any questions regarding high yield bonds or if you have any questions about your account.

Buck Wendel, Investment Advisor

Fund Manager Panel on The Mutual Fund Show this Weekend

Thursday, October 23rd, 2008
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I wanted to let everyone know that our Chief Investment Officer, Adam Bold, has put together an impressive panel of mutual fund managers for his radio show this weekend.  I  think this is a great opportunity to learn about the market from the perspective of the guys who are making the buy/sell/hold decisions for their funds.

Scheduled to appear are the following managers:

Dan Fuss – Loomis Sayles Bond and Loomis Sayles Strategic Income

Don Hodges – Hodges

Kent Croft – Croft Value 

Michael Cuggino – Permanent Portfolio

If you aren’t a regular listener go here to find out when it will air in your area. If you aren’t able to listen on Saturday, they typically post excerpts from the show within a day or two on the show website www.mutualfundshow.com.

Good listening,

Scott H

A Week in the Rearview – week ending 10/17/08

Saturday, October 18th, 2008
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In the headlines

A look at some of the market movers over the past week:

Commentary

The market posted strong gains on the week, with the S&P 500 index climbing 4.6% for the week. But I’ll excuse investors that overlooked this fact after getting viciously whipsawed during the week.

After a miserable week last week with the S&P losing over 18%, Monday saw the index soar nearly 12%. Tuesday and Wednesday, however, the market plunged yet again, losing 9% Wednesday alone. A 9% swing from low-point to the closing price led to a 4.3% gain on Thursday, and a volatile day on Friday ended with just a small loss.

It’s difficult to say what was really driving the market this week outside of raw emotion — fear in particular. Not only were the daily changes large, but the trading volume has regularly been double or triple the average over the past two years, and the difference between the high and low point of the day exceeded 7% every day of the week.

Clearly, work toward freeing up the credit markets, economic projections, and the ongoing earnings announcements are playing into investors’ sentiment. However, to say that this is a market being driven by fundamental factors is probably far from the truth.

Looking ahead

The more volatile and emotion-driven the markets become, the more difficult it is to predict what factors will play significant factors in its movements. That said, the news events that will cause the most commotion on the markets next week will likely be those that are unscheduled such as new information on the bailout progress.

Looking at scheduled events, the economic calendar is light as we approach the end of the month, and the weekly unemployment claims and crude inventories readings will likely be most notable. Existing home sales will be released towards the end of the week, but it seems unlikely that that will move the needle too much given the highly pessimistic housing starts numbers that investors have already digested from this week.

The earnings calendar, meanwhile, will be in full force next week with more major companies reporting than I can easily list. The question on earnings though is not only whether they come out better or worse than expected, but whether they will be drowned out by the din of the rest of the market.

In recent weeks I’ve spent a lot of time reviewing similar historical market slumps with the intent to show that we’ve been through similar times before and that we’ll see the other side of this — and along with it higher stock prices. More recently, though, I’ve heard a number of predictions that we’ll experience a stock market over a number of years that will bounce up and down without really going anywhere, and I thought this was worth addressing.

Looking over the history of the Dow beginning just before the Great Depression, there have been three periods of time when the market has flattened out its growth trajectory and basically gone nowhere for more than a decade. The first of those periods was the Great Depression. During that period there were some steep declines and some recoveries, but the market didn’t start to move appreciably higher until around 1949.

The second such period started in the late 1960s. After a peak in early 1966 the market bounced around aimlessly until the early 80s. And what of the third period? Well that started some time right around the end of the 20th century. That’s right, we’re in it. The Dow’s current level of just over 8,800 — we saw that back in early 1998. In other words, we’ve returned to where we were 10 years ago.

Putting this all together I think we need to take away two things. First, the idea that what we’re going through is “unprecedented” sells a lot of newspapers, but it’s doing nothing to help individual investors. While the specific combination of events we’re facing right now may be undeniably new, the idea of financial and economic turmoil putting a strain on stock prices and making the future look bleak is not new.

The other takeaway is the fact that the periods following the market’s long, flat stretches have been incredible wealth creation engines for investors that haven’t given up on the stock market. The market gained over 450% from 1949 to 1966 and climbed well over 1,000% from 1982 to 1999. While frustration over the current gyrations of the market is very understandable, backing away from the market now makes it highly likely that you’ll miss out on the next big bull run.

Fortunately, this week you don’t have to take my word for the advisability of not only holding, but buying, stocks right now. Warren Buffett, one of the best if not the best long-term investor, wrote a great op-ed piece for the New York Times on Friday laying out exactly why he’s putting his own money on the line in support of US stocks.

When the Market Gives you Lemons…

Friday, October 17th, 2008
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I try to be optomistic in everything I do.  Like when my beloved Chiefs start out 1-4, I remind myself that this is a rebuilding year, and at least they will probably get a good draft pick next year.  Or when I play a really horrible round of golf (worse than usual), I try to focus on how nice the weather is that day.  But in this market, it’s been tough to stay positive – really tough. 

After some thought, I have come up with a few positive things, or at least opportunities, to think about:

  • Gas is cheaper. Let’s assume the average family drives 30,000 miles a year. Gas is about $1 less per gallon here in the Midwest. Assuming you average 20 miles/gallon, that’s a savings of $1500 per year.
  • Investment opportunities. I believe that we have witnessed some panic selling recently, which may indicate the market is a bit oversold. This should present some good buying opportunities if you have a long-term investing horizon.
  • This condition is not permanent. We have been in this downturn about a year. Bear markets on average last 14 months.
  • This market is a great learning opportuity. Always be mindful of when you anticipate needing your retirement money. It’s easy to get caught up in being overly-aggressive when the market is doing well, but bull markets are not permanent either. Make sure that you scale back on your risk as you approach that retirement date. Even when times are good, the next bear market may be just around the corner.
  • Lifestyle changes - As much as I hate to say it, some Americans became too comfortable living beyond their means. This market has forced many of them to make lifestyle changes that will enable them to be more financially responsible in the future.

If you are interested in reexamining (or establishing) your budget, go to our calculators page (in the Tools and Resources section) and use the link at the bottom to access a free excel budgeting tool.

Remember that during every bear market, most investors feel hopeless and become discouraged with investing; often at just the wrong time.  Things will once again become good in America, so stay positive and enjoy some financial lemonade – I believe better times are ahead.

Kevin Jaegers, Senior Investment Advisor 

What have we learned since Friday? The market needs an identity.

Wednesday, October 15th, 2008
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On Friday, I wrote that I thought the market was acting irrationally.  The next couple days have been further evidence that the market is struggling to figure out its identity. 

On Monday, we were greeted with an increase of more than 11% or 900 points on the DOW and everyone was relieved (I would have been happy with a increase of 300 points and thought the 900 point increase portended more volatility).  Tuesday was relatively quiet.  And today, as many have seen, the DOW declined almost 8% or more than 700 points.

I, like many of you, have felt a bit of whiplash lately.  I couldn’t remember a time when we had this much volatility on a day-to-day basis so I went back and did some digging.  Here’s what I found.

In the eleven (11) trading days we’ve had in October the smallest point swing in the DOW, from intraday high to intraday low, has been 475 points. The average daily swing in October has been more than 800 points. 

To put this in perspective, over the last five years, 1259 trading days, we’ve had only twenty-one (21) days where the point swing was equal to or greater than the smallest we’ve experienced in October.  In fact the average point swing was only about a quarter (25%) of what we’ve experienced lately.

So what does it all mean? 

In my opinion, the market continues to follow a herd mentality.  Whichever way the leader points, the herd goes.  Either euphoria reigns like it did on Monday, or panic reigns like it did today.  I am not discounting the effect of the ongoing turmoil in with financial institutions or the economic weakness that we are seeing.  I am however saying that this is nothing new.  The market has had time to reflect on a slowing economy as well as the time to adjust itself to a slowing economy for the last several months.

On the positive side, we’ve seen further action by a number of government’s worldwide.  Several, including the U.S., are investing directly into weakened financial institutions in order to shore up their capital structures and promote a loosening of the credit markets.  With time, these actions will work through the market and begin to free up the capital that businesses need to operate and grow.

In addition, oil closed today below $75/barrel, almost 50% below its peak in July, which will result in more money in everyone’s pocket.

What I’d like you to take away from this post is that I expect continued market volatility, however irrational it may be.  But I also continue to believe that this is a long-term buying opportunity.  The market and the economy have proven their resilience time and time again.  I believe this will again be the case and think we will look back on this time and realize that it was a good time to be a long-term investor.

Scott H

P.S. For those of you who haven’t joined the 1% challenge and taken advantage of the discount, I encourage you to do so today.  To learn more about the challenge, click here.

Economic Crisis – The Players and the Initial Factor

Sunday, October 12th, 2008
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We now have a rescue plan that’s been voted on and approved by House and Senate and signed by the President.  You can find people on all sides of the debate from those who think it was an absolute necessity to those who are against the idea of intervening in any way.  I fall somewhere in the middle, believing that the action was necessary, but also that the bill is far from perfect.

Since we have a bill in place, I’m not going to debate the merits of the plan, but rather try to examine how the bill became necessary.  Because of the enormity of the situation, I plan to cover this in a series of posts.  In this post I’ll provide an overview of those involved and how it became a crisis. 

The Players

I’m sure by now that most have read that real estate is at the root of what’s going on around us.  You have probably also heard that sub-prime mortgages are one of the many factors that allowed the bubble to grow even larger.  Now you might be wondering who was involved and who’s really to blame.  Is it really Wall Street versus Main Street?

In my opinion the blame belongs on both sides of the street with everyone who participated in the process.  Below, I’ve listed a brief overview of the primary players involved:

  • The individual who borrowed more than they knew they could afford.
  • The broker who was focused on the transaction, even if he knew the loan didn’t make sense for his customer, because he was focused on the commission.
  • The mortgage firm that wasn’t worried about the loans their brokers were originating because they were going to sell the loan ASAP.
  • The investment banks that packaged the loans into mortgaged-backed securities.
  • The ratings agencies who rated the packaged loans as high-grade loans with low default risk (Note: These agencies are paid by the same banks that are packaging the loans. Can anyone say “conflict of interest?”.)
  • The buyers (mostly institutional buyers who should be knowledgeable investors) who competed to buy the mortgage-backed securities even thou they didn’t know the true underlying risk of the asset and therefore ended up overpaying for the assets.
  • The investment banks — including many of the same that packaged the loans — that sold unregulated and unfunded credit default swaps.
  • o Credit Default Swap – basically an insurance contact between two parties that says the seller will pay the buyer if the underlying mortgages default above the negotiated rate.

There were many levels of fallout that created the crisis that we’re currently in. The first was the real estate market.

The First Layer

Eventually all overheated markets reach a peak and begin to decline to a state of normalcy.

As interest rates declined early this century, buyers were able to buy houses that they previously couldn’t afford.  This pushed real estate prices up.  In order to enable individuals to continue to buy these newly revalued properties lenders started selling loans that weren’t based on standard lending requirements.  In some cases borrowers didn’t even have to prove that they had the income to support the loan.  In others, the borrower could just barely afford the loan payments that were based on an artificially low initial rate.  And as we all know, if something seems too good to be true… it probably is.

As is typical in an overheated market, people overestimated the true value of the asset and mercilessly bid-up home prices.  But eventually the price stretched too far, sellers started having trouble selling at the sky high prices, and a rush for the exit began.   This sent housing prices tumbling and scared many potential buyers out of the market.  Now we find ourselves in a waiting game, hoping that new buyers decide to reenter the market and help stabilize prices.

So now you know who participated in the crisis as well as the first layer of how it developed.  In the next post, I’ll take a look at how mortgage backed securities, the second layer, have impacted the situation.  Feel free to post a comment if you have any questions or if you would like to add more information on the situation.

Scott H

A Week in the Rearview – week ending 10/10/08

Saturday, October 11th, 2008
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In the headlines

A look at some of the market movers over the past week:

Commentary

If I was running out of superlatives last week, then I’m fresh out of them this week. The markets have deteriorated unbelievably quickly and finished a stomach churning week down more than 18% from where we finished last week. Over the past two weeks the S&P 500 index has now lost almost 26% and hasn’t seen an up day since Tuesday September 30th.

I wouldn’t want to discount the events of the week, since some were very notable. For instance, the Federal Reserve’s half point rate cut was note worthy for its size, the extent of global coordination, and the lack of impact that it had on the markets all at the same time. Meanwhile, the news from outside of the US from Germany to Italy to Iceland conveyed just how global the financial problem has become.

And while US markets took a major hit during the week, international markets were hit astonishingly hard as well. Japan’s Nikkei, for example, lost more than 9% on two separate trading days this week, and finished the week down 24%. Europe’s FTSE index wasn’t hit as quite as hard as the Nikkei, but still bested the declines of the US indexes, falling 21% for the week.

And of course we can’t overlook the end-of-week announcement that the US Treasury would start taking stakes in banks.

Looking ahead

The beginning of next week (which is Tuesday due to the Columbus Day holiday) will likely be filled with chatter about the Treasury’s potential actions and what they might mean for the broader market and the financial system. Meanwhile, earnings will start pouring out. Though the market is likely to overlook most of the releases, there is little doubt that investors will key in on earnings releases from major financial players like JPMorgan (NYSE: JPM) and Wells Fargo, both of whom report on Wednesday.

On the economic front, inflation readings will dominate next week, with both the producer price index and consumer price index being released. It’s assumed with commodity prices well down from their highs that inflation will moderate substantially, but it’s questionable whether the market will take this as a bullish indicator at this point. The Fed also releases its “beige book” next week, which will be picked over for signs on the economy’s direction.

With very few comparable periods on the market to look to, we don’t have too much of a model for what to expect in the coming weeks and months. However, it could be instructive to look at the few models that we do have. In terms of 10-day periods where the market fell 20% or more, there are five main examples outside of the current period: October of 1929, October of 1931, April of 1932, May of 1940, and October of 1987. At the peak of each of these rapid declines the average 10-day loss was 26.7% and the median was 22.7%, which puts our current 24.2% 10-day loss roughly in the middle of the pack.

More importantly, though, let’s look at what happened following these fast drops. The situations varied greatly with October 1929 — which was right off the peak of the pre-Great Depression bull market — on one end and October 1987 — which consisted primarily of a one-day aberrational drop — at the other end. On average, the Dow rebounded 9.5% in the first month after each of these declines. In fact, a positive advance of 7% or more was the case for every instance except April 1932. All but one instance (October 1931) showed positive gains over the next six months — 4.2% on average.

As usual, though, we’re more concerned with longer periods of time, and those results look promising. On average, the Dow gained 16.1% (5.1% per year) over the next three years, 71.2% (11.4% per year) over the next five years, and 102.5% (7.3% per year) over the next ten years.

But let’s go one step further. The laggard among our group over these longer periods is October of 1929. Why? Well, that was the initial salvo in the stock market crash of the Great Depression. Looking at our current situation, the Dow was already down around 20% when the market started hitting the brakes hard, so we could argue that the performance following the October 1929 drop is less comparable. Take that out and our numbers look even better: up 38.5% (11.5% per year) over the next three years, up 103.1% (15.2% per year) over the next five years, and up 137.3% (9.0% per year) over the next ten years.

While there really aren’t enough examples to draw any certain conclusions, all of this is just a long way of saying that this is not an advisable time to be yanking your money from the market. The commitment when you’re saving for retirement is to put the money in the market and allow the impact of compounding to serve you over the decades that it’s in there. While it may seem torturous to have your money invested right now, your future, comfortably retired self will thank you for keeping it invested.


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