When Will the Stock Market Recover? What Retirees Should Prepare For

When will the stock market recover? Through the end of September 2022, the S&P500 was down nearly 24%.

After 10 months of investment punishment, a lot of investors, especially retirees, are wondering when the stock market recovery will begin.

Today we are going to discuss what retirees should prepare for.

When Will the Stock Market Recover?

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Full transcript:


Alex Okugawa & Anthony Saffer

Anthony Saffer 0:00
Through the end of September 2022, the S&P 500 is down nearly 24%. Retirees are asking the question, when will the stock market recover? Today we’ll address what you should be prepared for.

Hey, there, it’s Anthony and Alex from One Degree Advisors. If you’re new here, we’re Certified Financial Planners, we help folks with all things retirement, tax, and investments. So Alex, today we’re going to dig in, and we’re going to talk about is the stock market going to recover soon.

Alex Okugawa 0:32
Yeah, I don’t know, we don’t know. And anyone who states that they know with certainty when this market will, you know, recover, I think should be viewed with an eye of caution. Now, to understand where we are possibly going to go from here, I think it’s helpful to really be like a student of market history. And, you know, there’s a lot of history we can go into today, we’re going to keep it relatively simple, we’re just going to look at three previous market declines. But people should make sure to stick around towards the end because we’ll be talking about some helpful resources, which may help during times like this. But here’s the thing, people typically are anchored to two extremes, right, you have your V-shaped recovery, a really sharp drop with a really quick rebound, or like this world ending the economic crisis, and can only be one of the two Exactly. There’s no in-between, it’s one of those two. But let’s take a look at an example of each of these, we’ll pull this chart up on the screen. what folks are looking at here is a chart from March 2020. And this was the COVID drop, right? So the stock market dropped over 30%. But here’s the thing, it was one of the fastest market recoveries in history. So the s&p 500 took 33 days to reach the bottom, just about a month, a third of the market, yes, gone. But here’s the thing is it only took 140 days to recoup its losses. So the recovery from the March lows was astonishing. And you were up over 65% By the end of the year from that margin, the bottom bar bottom part. And so that’s the thing, that’s our most recent like experience with like a big kind of bear market. The problem is it was so fast. And so some people are getting anchored to that’s what they’re used to. That’s what they’re expecting. So anything longer than 30 days down in 140 days up to like what’s going on here? Now, over a decade ago, we had a great financial crisis. So this is kind of more like the world ending, you know, economic crisis and the market dropped over 55%, which is really bad. But here’s the thing, it declined for over a year. So literally for a year, the market was it was close to a year and a half really. And then it took a little over three years to recover. That can take a heavy toll on someone, not just an average investor, but especially a retiree that’s looking at their portfolio to create some income. And of course, this is an extreme example of bank collapse and an overall economic failure. One last chart, we’ll pull up here, this was the.com bubble of the early 2000s. Now in this example, for the s&p 500, total return, it took about two years to bottom, and about four years to recover. Okay, and you can see that the maximum drawdown shown on the chart was about 47%. Now, here’s the thing in all of these different crises, you could de-risk your portfolio in a way and lower your downside by including some more conservative investments, such as bonds or Treasury bonds. But here’s the difficult part is, as we’ve discussed in past videos, bonds really aren’t working this year. Right? Right. Bonds are on pace for one of their worst years and decades. So this year is presenting a big challenge for investors, especially retirees that have bonds in their portfolio, because bonds are not, they’re just not giving people what they expect.

Anthony Saffer 4:00
It’s disproportionately hitting retirees who tend to have more bonds. Exactly. Now, here’s the other thing is that a lot of times people when you talk about anchoring, they anchor on to, well, what are the averages for the stock market? And so a lot of people know that number. It’s like 10%, if you go back to the 20s, and DFA has a nice chart where they put all the yearly returns in order. The thing is, is that when you look at 10% returns, it takes a long time to get there in terms of the averages. There was only in the past 96 years, only seven years, where it was actually near that 10% range to actually get there. Things take a lot of time to average out where we get that you know that quote-unquote normal return.

Alex Okugawa 4:45
Now the thing is, is when we look at all this, right, so some people might be like, Well, yeah, no. 10% is the long-term average. But right now things really stink, and so we’re not minimizing the losses that many retirees are facing. They are facing this because the truth is that retirees are losing serious dollars at the moment, and these losses are scary. And the thing is, they could potentially wipe out a retiree who was unprepared. I think that’s the big key there, right is if you’re unprepared, this could be a wipeout scenario.

Anthony Saffer 5:16
So when we’re talking about preparation, we posted a blog article in early 2021. So this is when the market was really good. It was all about preparing for the next bear market. At the time that we posted that, I think it even says it in there, we’re not necessarily predicting when that’s going to happen. We don’t know what that’s going to look like. But it was really mapping out a plan for how to prepare for the next bear market. Now that we’re in it, many of those principles still apply. And it’s a good way to not only maybe make some corrections but to look out and say, Okay, how can I be prepared for the next one? Because that’ll happen as well?

Alex Okugawa 5:49
Yeah, I mean, you need the plan to weather the storm. So for a lot of our clients, you know, allocations to short term bonds, inflation, pretty short term inflation, protected bonds, those are the things where they are helping so far this year on a relative basis. The other thing is more kind of like a trend following tactical strategy, which a lot of our clients have. That’s helped because right now, it’s very defensive. And it’s been quite defensive for most of the years. So it’s in those short-term treasuries. The point being is that this isn’t an adjustment that you can make, like mid-year or you probably shouldn’t, right, you need to have planned this out years in advance, kind of like you’re talking about earlier, preparing for the next bear market in advance. You don’t want to be doing this last minute. One final thing here. We did recently publish a video for retirees called Three ways to protect your retirement in 2022. People can watch it right here. Again, something good to check out.

Anthony Saffer 6:45
What are you doing to prepare for this market? Whether we continue to decline? Or are we hit a rebound? Leave your thoughts in the comments down below, along with comments for any future videos. And if you liked today’s video, please like and subscribe for more. Thanks for watching.

Transcribed by https://otter.ai

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