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The stock market has been a reliable source of long-term wealth creation for investors for decades. But even the most savvy investors know that the market can be unpredictable. In any given year, the stock market can go up or down, and even the most savvy investors can be caught off guard.
But one thing that is very rare is for the stock market to have back-to-back down years. This is a situation where the stock market goes down in consecutive years. It’s so rare that it only happened three times in the past 50 years.
The most recent example was in 2008 and 2009. During that two-year period, the S&P 500 lost 37.0%. This was the worst two-year stretch since the Great Depression.
The other two examples of back-to-back down years occurred in 1973 and 1974 and in 2000 and 2001. In both of these cases, the S&P 500 lost over 20%.
So why is it so rare for the stock market to have back-to-back down years? One reason is that the stock market is driven by investor sentiment. Investors tend to be optimistic in the short-term, which can drive the market higher.
But over the long-term, investors tend to be more cautious and conservative. This means that even if the market goes down in one year, investors may be more likely to buy in the following year, which can help the market recover.
Another reason why back-to-back down years are rare is because of the long-term trend of the stock market. Over the long-term, the stock market has consistently gone up. This means that even if the market goes down in one year, it’s likely to recover in the following year.
Finally, the stock market is also driven by the overall economy. If the economy is doing well, then the stock market tends to do well. But if the economy is struggling, then the stock market will suffer.
So while back-to-back down years in the stock market are very rare, it’s important to remember that the stock market is unpredictable. It’s important to be prepared for both up and down years, and to have a long-term investment strategy that can help you weather any storm.
Stats are always good but, this year, the fed is still raising rates, inflation is stubborn, job growth just exploded above expectations and you can easily make 5% in a bond fund. I've got more in guaranteed than I've had since the late eighties. Stocks need to come back a bit for me to buy more in the near future.
Thanks for this data driven information. It’s good to know that back to back down years are rare. Let’s hope for some big positive returns. Thanks for the great video and advice.
Enter into a recession? We've been in one!
Knowing that the longest bear market has so far been 2.9 years with the avg and mean being 12/14 months. That should be a guiding principle, From 1900 to 2020 there has been 103 total bull years with 16 total bear years. Just keep putting your money in while working and enjoy pulling it out when you retire.
In spite of the market being down, due to buying low in 2020, my holdings value is up triple what it was in January 2020. I sold out of the tech bubble with a stop loss sale, What I sold is now valued at less then 1/2 what it sold for. To compound growth, a few months later, I invested in pipelines, tankers, and oil companies during the crude oil crash. Exxon – Mobile bought for under $40 is now over $115. Western Midstream Partners, bought for under $6 is now over $25. Market is down? maybe a little from the peak, but far from being down from where I bought. Currently buying other stocks that a down now. When the P/E is under 5, i get interested.
I agree with all your comments (as usual!), except I did carve out some "speculative" money in my portfolio to go buy that new hot stock/fund/ETF when the opportunity arose. Of course it was a VERY small portion of my total portfolio, and was money I could afford to lose if worse came to worst, but it did pay off on several occasions. I realize not everyone can do that but if you can you can go chase that Tesla upswing if you want. Just make sure you won't get hurt too bad if it tanks.
Erin’s cute
No one knows the future. But at the same time, the 3 month treasury bonds are currently going for 123 basis points ABOVE the 10 year bond. That's a strong indicator that the market is NOT going up meaningfully any time soon.
Although counter intuitive (especially at your relative young age) should want another bad year and watch it balloon in 2024 and beyond!
Thanks for taking macro-economic news and drilling down to show how it might impact us as individual investors. Good video!
Very good video. I'm Ex US indexed 40%.
Well Done! Thanks! It was great for me to see your charts and graphs. I am a visual learner, and I'm also an old guy. I've seen the big drops in the market, and seen the big gains. It is nice to see that the downturns don't last very long. Worst case – only three years!
I think 2023 is going to be another bad one – and I'm trying to figure out where to hide money when the inflation rates are so high. I'm over invested in real estate, but perhaps I need to speed up my plans to sell one of my houses. Who knows. We will do what we can do, and have faith that things will work out.
I'm considering selling my single stocks in apple, microsoft, and google to just invest in VOO… but I'm not sure what to do. I'm also thinking of putting more into the SOX index for semiconductors.
I don’t own Apple stock individually. After looking at my 401k and fund ETFs in my IRA I ended up with 16% of my money in Apple. I was surprised. Most funds, Ets have the same high percentage of the same five stocks: Apple, Microsoft, Amazon, Google, meta.
Thanks for the sage advice Erin. I am a happy accumulator at these levels and agree: ABB!
I think the Market will depend on what the Feds do this year. They are expected to raise interest rates again in Feb.
Plus there are Quarter financial reporting coming in Feb. Companies may not have a good quarter and that could bring the market down.
Holding off til February to buy anything.
I remember losing 50% of my stock portfolio in 2008-2009 during the financial collapse. By 2011, it was back to pre-2008 levels. Then we had almost a decade bull market. Don’t flinch during a bear market as you have to stay the course and keep looking long-term.
I'm sticking to my 5% Annuities and S.S. . At age 69 we live comfortably on this and don't have to worry about the Global Economy…..
What does everyone think of the vanguard institutional index instl plus fund?? Or a target date index fund??
I’m trying to figure out the best way to transition out of a target date fund and into index funds 70/30 mix
Erin..thanks for your bright outlook and smile. I am feeling better about 2023 already!
Great pattern, it's like a night sky!
The real question will be what the real returns are from 2022-????. My guess is that with high inflation continuing we will see negative returns for a couple years much like the 1970s.
I am seeing your subs grow. The word is getting out
Nice job, Erin. That's exactly how I built my nest egg and was able to retire early at 51..dollar cost averaging and getting a really good match dollar for dollar in my 401K. my investment plan is to sell cash secured puts on quality dividend stocks as I continue to build out my long term dividend portfolio. You make really good income waiting to buy stocks you want to own at a discount : )
So….buy buy buy?
In October, I switched some money to the total stock market. I want to ride the wave back up to the top!
It took some guts, but I don’t have that much money anyway, and I’m 25, so I have time to recover if I lose money!
Thanks again for another wonderful topic.
I've been contributing to my governmental 401K and 457B for many years, but have contributed more to the 457B. With the passage of SECURE 2.0, my RMD age will be 75. For 2023, I incorporated the RMD age change into my investment strategy to allow for a longer growth period for my 457B. Because, I will be drawing down the 401K first when I retire in 2025 and leaving the 457B sit, I kept my 401K as a 2025 TDF, but moved all of my 457B to a 2040 TDF since I would turn 75 in 2040. I can afford to be more aggressive with my 457B as I am treating my 2040 TDF's "retirement age" as 75. My plan is to deplete my 401K account by the end of 2039 and then move on to the 457B RMDs starting in 2040.
I think following the investing rule of "never lose money" can be achieved if you dollar cost average and invest over the long term only withdrawing in retirement.
Recessions are normal because if you forcefully remove recessions, the alternative is hyperinflation. So, I hope there is a recession.
Anyone who is a long term investor should never change anything during a market downturn. Just continue investing as you always have and you will capitalize in a big way on those low stock prices. I am about 9 years away from retirement and I put 100% of my investment dollars into stocks last year…and doing the same in 2023. Real wealth is built during bear markets.
Maybe if we were less of a global economy and more of a national one we wouldn’t have to be dragged down by others.
100,000 hens killed in Connecticut fire … ouch that hurts with egg prices high
Very balanced and timely advice Erin, thanks!
We have to get Biden out.
We are already reducing our spending. We have changed what we are buying at the grocery store.
Gas is creeping up again.
Car and home insurance has increased.
Property taxes are up.
Utilities are up.
People's budgets are maxed out.
I think 2023 will see the market up slightly when all is said and done, but there will be a lot of ups and downs along the way. In early 2023, I will be doing the same as 2022. I will be buying high quality, dividend paying stocks & ETF's that are on sale. These dividends are being reinvested currently, but later this year, will become part of my cash flow. But as you said, I have a very diversified portfolio, so these stocks are only a part of the overall portfolio. I consider them part of my Bucket #2.
Very informative and good advice. Thank you!!!
Nick Maggiulli's book Just Keep Buying is really good
I will be stunned if the S&P doesn't end up at least 15 percent this year.
As of January 1, Colorado no longer allows caged chickens. I have to go to two or three stores to find eggs here. I only paid $5.80 last time, but I've paid up to $8/dozen. The little girl down the street has four chickens, but she keeps the eggs for her family. We can have up to five chickens here.
Does the negative year need to correlate with a real recession to have the bounce-back year?