Think about what we’ve come to grips with over the past few weeks: the US economy faces an unprecedented, pandemic driven demand shock; the US Federal Reserve is engaged in a level of monetary policy support and liquidity creation unlike anything in its history; the S&P 500 Index’s journey from a bull market to bear market was the quickest ever (taking just 20 days); a record 3.3 million Americans filed for unemployment insurance, and the Federal Government passed the largest fiscal stimulus package in our nation’s history!
This period – and its associated challenges to our country, our people, and our economy – is unprecedented. With that said, we think a few truths will continue to hold: risk assets are biased higher over the long term, the US economy will expand much more than it contracts, and market gains will come in big, clustered bunches. To the final point, consider last week’s performance of the Dow Jones Industrial Average not only did the index put together its best three-day stretch since 1931, but it also recorded its best single-day gain since 1933 when it returned nearly 12%. That return stream is a stark reminder as to why it is so difficult to time the market – hop out and you might avoid a few bad days, but it’s as likely you will miss the market’s best days. To make that dynamic trickier is that any year’s best days tend to follow immediately on any year’s worst days (consider the week of March 16, 2020, when we saw the Dow sell off nearly 9%). If we need another data set about the perils of market timing and the risk of missing the market’s best days, consider if you invested $10,000 into the S&P 500 in 1999 – and kept the money in the market – it would have been worth $37,380 by the end of 2019. However, miss just the 40 best days for the market over that two-decade stretch and the $37,380 portfolio is worth just $4,441!
Periods of economic and market uncertainty are no fun, but during these difficult periods we must remind ourselves of the importance – and the financial benefit – of taking a long term view of things and of staying invested.