Financial Planning Fridays #163: When to Find the Largest Investment Gains
The biggest investment gains of the past 25 years have often come right when markets feel the worst. This video reviews the S&P 500's seven major bottoms since 2000, which were followed by average 30-day rebounds of 17.2% and 12-month returns of about 47%, and explains why having a rebalancing plan in place before a downturn matters more than trying to time the exact bottom.
The biggest investment gains of the past 25 years have often come right when markets feel the worst. This video reviews the S&P 500's seven major bottoms since 2000, which were followed by average 30-day rebounds of 17.2% and 12-month returns of about 47%, and explains why having a rebalancing plan in place before a downturn matters more than trying to time the exact bottom.
Key takeaways
- Since 2000, the S&P 500's seven major market bottoms were followed by an average 30-day rebound of 17.2% and an average 12-month return of about 47%, though past performance does not guarantee future results.
- Waiting for headlines to calm down before investing again risks missing much of the rebound, since markets often recover before sentiment does.
- Having a plan in place before a downturn, to rebalance and add to stocks during the decline, allows investors to act instead of guessing.
- Keeping a multi-year reserve of bonds and cash, along with completing tax loss swaps, helps investors stay invested through a downturn while improving after-tax returns.
Hi friends, the biggest investment gains over the past 25 years have come when it feels the worst. Please let me show you. Since the year 2000, the S&P 500's seven major market bottoms were followed by powerful 30-day rebounds, an average of 17.2% in just one month.
If we zoom out to one year, the returns are even more incredible. Those same starting dates averaged more than a 47% return over the following 12 months.
So, what can we learn from this to become better investors? Two things. First, you can't wait for the calm. By the time headlines are back to normal and we once again feel safe, markets have often surged. Trying to sell during a decline and then buying back later risks missing these amazing return bursts.
Second, you need to have a plan before the storm starts. Plan to rebalance your portfolio and add to stocks during the decline so you can take full advantage of the rebound. Keep a multi-year reserve of bonds and cash so you can stay invested and keep living your life until the market recovers. And complete tax loss swaps to improve your after-tax returns while maintaining your investment allocation.
These are all things that we do for our clients at Presilium. Discipline and advanced planning, not perfect timing, are the keys during these rare opportunities. Thank you, and I look forward to talking with you next Friday morning.
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