May 2022 Market Outlook

5/23/2022

Keys To Prevailing Through Stock Market Declines
Traditions Wealth Advisors
Brien L. Smith, CFP®/James Lane
May 23, 2022

“The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people” Warren Buffett

“Thank you, clients, for being those patient people.” Brien L. Smith, CFP®

I. Summary:
 1. Declines have been common and temporary occurrences.

Declines cause imprudent behavior by filling investors with dread and panic.
We must realize that declines are inevitable and have not lasted forever.
History shows that stock market declines are a natural part of investing and are somewhat regular.
The market has always recovered from declines.
Accept declines as a normal part of the investment cycle.

2. Proper perspective can help you remain calm

Studies show that people place too much emphasis on recent events and disregard long-term realities.
Even amid a market downturn, stocks have rewarded investors over time.
The stock market has a reassuring history of recoveries. After hitting lows in August 1939 and September 1974, the S&P 500 index bounced back strong, averaging annual total returns of more than 15% over the next 10 rolling 10-year periods in both cases.
Long-term investors have been rewarded. Even including downturns, the S&P 500’s mean return over all rolling 10-year periods from 1937 to December 2021 was 10.57%.
A long-term perspective can help you prevail through challenging times.
Proper perspective can help you remain calm.

3. Don’t try to time the market

Research has shown that losses feel twice as bad as gains feel good.
Keep in mind that fleeing the market to reduce losses could mean losing out on gains when stocks recover.
The market has shown resilience. Every S&P downturn of about 15% or more since the 1930s has been followed by a recovery.
Recoveries have been strong. Returns in the first year after the five biggest market declines since 1929 ranged from 36.16% to 137.60% and averaged 70.95%. Over a longer-term, the average value of an investment more than doubled over the five years after each market low.
Don’t miss out on potential rebounds. Recoveries are not guaranteed, taking your money out of the market during declines means that if you don’t get back in at the right time, you’ll miss the full benefit of recoveries.

4. Emotions can cloud judgment

Investors can often make poor decisions when they let their emotions take over.
Stay focused on your long-term goals and carefully consider your options.
Market swings can tempt people to buy high and sell low.
People also feel like doing anything during a downturn is better than doing nothing. However, staying invested in the market is usually the better choice.
Avoid making rash decisions based on emotions.