In exchange for the wonderful superior long-term returns of stock, we need to occasionally endure a significant temporary decline. Some are more challenging than others and can be extremely difficult to go through, but like anything else are much easier if you are prepared.

Let’s look at the largest temporary decline since the great depression together, the Global Financial Crisis, as a way to mentally prepare ourselves with historical facts for the next severe market decline.

On March 9, 2009, the S&P 500 was down about 50% from the high it had previously made on October 9, 2007.

However, many of our clients keep a reserve in bonds for times just like this, so we looked at the total return of a 70% stock and 30% bond portfolio instead. A $1M portfolio was reduced to $575,240 after a grueling 17 months. During this time, many of our retired clients were using the portion we had invested in bonds for their distributions, and we were continuing to rebalance by adding to stock as the market declined to maintain their 70/30 portfolio.

It then took almost 3 years to get back to even after the March 9, 2009 low, and a total of more than 4 years from the previous high in 2007. This was shortened for anyone prepared enough to add to stocks during this time.

Unfortunately, these severe market declines are a part of investing and impossible to time. Our best plan at Presilium is to talk about this ahead of time to be both mentally prepared and have enough in reserve for clients who are retired and need access to their savings to make it through a severe market decline.

Although this was a very difficult time, as long as you held on and maintained your investment allocation, a 70% stock / 30% bond portfolio is now worth 4 times as much as the day before this massive decline began.

We remain optimistic and keep the majority of our client’s investments in stock because through proper preparation and discipline we know we can successfully make it through times like this and therefore be rewarded with the long-term returns needed to reach our client’s goals.

Thank you and we look forward to talking with you again soon.

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