The year 2008 was a momentous and memorable year for me. I married my wife, Erin, and we headed on our African honeymoon to the Serengeti and to climb Kilimanjaro.
During this, the financial crisis ensued. This was an incredibly stressful time for investors because banks were failing and no one could see an end in sight.
After six days of trekking up Kilimanjaro, our tour leader warned us on the last night before the final assent: “This is going to be hard. You will be in the dark and it will take around seven hours of slow grinding climb up a shale mountain. But we are all in this together and when the sun rises and you summit, it will be worth it.”
He was 100% right.
I share this analogy because we are currently in the midst of a historic meltdown and we don't know when the light will shine again. We believe in the human spirit. Look no further than the 20-year period 1998-2018 which included: Y2K, Tech Wreck, 9/11, Global Financial Crisis, Brexit, and many infectious disease (H1N1, SARS, Ebola and MERS) and the S&P 500 Index still climbed an average of 7% per year.
In our hearts, we believe we will get back to the top of the mountain and sun will shine again. We have talked to many of our clients and thought it might be helpful to share our response to common questions & concerns:
(Q) How long will it take to get my money back?
(A) No one knows the future but history provides a good guide. According to A Wealth of Common Sense, there have been 12-Bear Markets worse than where we stand today. These 12-Bear Markets had an average drawdown of -42% and subsequent recoveries 52%, 89% and 132% within 1,3 & 5 years respectively.
The hard part is no one knows where the bottom is. But in saying that, does anyone remember what happen on March 9, 2009? Nothing. That was the bottom of the 57% Financial Crisis– we just didn't know it at the time. Currently, we are down about 30%... as such we need a 43% return to get back to the top. Many stocks are now trading at prices and dividends yields not seen since the 2008 Financial Crisis. Based on history, we are probably looking at a 3 year recovery.
(Q) What do Bull & Bear Markets look like?
(A) Bear market is a 20% drop and a Bull is a positive/growing environment. The included chart from Bloomberg shows GOOD markets far outlast BAD ones.
(Q) Should we take our money out now and put it back in later?
(A) This is called "Market Timing" and there isn't anyone that has been able to do this repeatedly. In fact, half of the market’s best days in history have happened during Bear Markets and another 30% of the market’s best days have happened in the first two months of a recovery. In short, we don't believe we can successfully do this.
While we cannot predict the bottom and it is possible the market could fall further, we believe we are closer to a bottom. Remember what is in the media is already priced into the stock market. In closing we leave you with some principals for success:
1. Keep connected with friends and family – isolation can be emotionally draining
2. Get outside – sunshine releases vitamin-D and endorphins
3. Call or email us – we are here for you no matter what
4. We can revisit your plan – for some, we have been recalculating retirement and cash flow projections based on today's events and values.
In summary, it is dark and a grind. It is hard and will continue to be hard for you and all concerned. We will recover and we will get back to the top of the mountain – together.
Invest Well. Live Well.
Written by Eric Davis. This document was prepared by Eric Davis, vice-president, portfolio manager and investment advisor, and Keith Davis, investment advisor, for informational purposes only and is subject to change. The contents of this document are not endorsed by TD Wealth Private Investment Advice, a division of TD Waterhouse Canada Inc.-Member of the Canadian Investor Protection Fund. All insurance products and services are offered by life licensed advisors of TD Waterhouse Insurance Services Inc., a member of TD Bank Group. For more information, call 250-314-5124 or email Keith.firstname.lastname@example.org.