Investing through recessions and recoveries video

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Video transcript


2020 has certainly brought plenty of challenges and uncertainty.

The global pandemic and turbulent markets may have investors concerned about current conditions and what might lie ahead.

While the bear market decline earlier this year was unique in terms of the catalyst and speed of the drop, bear markets themselves are not abnormal.

Market downturns may not be pleasant, and while it's nearly impossible to avoid them, past experiences show they do not have to derail your journey toward your financial goals.

Although past performance of the markets cannot guarantee future results, here are three lessons from history that can serve as a valuable guide.


Well, history teaches us that market declines are normal. And we also know that they've been temporary, and staying invested can help you keep them that way.

So if we think about the path that the markets have traveled, it's impossible to dodge every single twist and turn in the market, nor, as a long-term investor, should you endeavor to do so, but there are some approaches that you can take to help ensure that you can navigate those ups and downs and stay positioned for the long term. If you look back over history since 1970, what you'll find is, on average, even during bear markets, there are an average of two rallies of at least 10% within those bear markets. And in particular, the largest rally has averaged 17% to the upside. So what that tells us is that even during bad markets, even during markets that are going down, there are those rallies along the way, and staying invested can help you participate in those.

The other thing we know is that the market can turn quite quickly. Bear markets can turn into bull markets without announcement, without any signal, and can do so quite quickly. So again, over history, if you look back, what we see is the first three months of a new bull market, the market rises by an average of 25%. If we look back earlier this year from the lows in late March, the three months following that, the stock market rose 30%. So that tells us that conditions can change quite quickly. As an investor, we want to make sure that we're staying invested to participate in those turns.


We often look to indexes like the Dow or the S&P 500 as a benchmark for how the stock market is performing, and appropriately so. It's important to remember, however, as an investor, your portfolio is geared and aligned to your long-term financial goals, not simply one particular index. So your performance isn't necessarily the stock market's performance. It's important to keep that in mind.

So for example, the average bear market, the stock market, is about a decline of about 42%, yet during those periods, during those bear markets, the average performance of bonds is up 8% historically. So that tells us that building that appropriate mix of stocks and bonds can help your portfolio travel a slightly smoother path than just the stock market itself. And that's important because when we're thinking about achieving our long-term goals, it's important to build high quality portfolios that are balanced and diversified appropriately, which means that you aren't simply tracking the day-to-day moves of the stock market.

If we look earlier this year from February to late March, the stock market, the S&P 500, fell about 35%, and yet a balanced portfolio, 65% stocks, 35% bonds, held up much better because year to date during that period to late March, bonds were actually up about 3%. It's important to keep in mind, when you're making portfolio decisions, do so with your long-term goals in mind, not simply the performance of the stock market over short periods of time.


As long-term investors, this is perhaps one of the best advantages we have, is to put time on our side. And the good news is, historically, what we know and what we've learned from the markets is that bull markets, the expansions and the upswings last longer, in fact, much longer than the downturns or the bear markets.

The average bear market historically has lasted about 18 months. The average bull market expansion has run for an average of about 54 months, so substantially longer with an average return of better than 150%, which means putting time on your side allows you to participate in what is typically the positives outweighing the negatives.

It's also important to remember that over that period of time, going back to our lesson learned about building balance and diversification, owning a diversified portfolio can even allow you to recover from some of the downturns in bear markets much quicker.

So as an investor, we want to put all of these lessons to work, making sure we stay invested, making sure we build that balance and recognize that portfolios aren't necessarily just the stock market or a single index, and that we're putting time on our side. Because history does teach us that if we employ those principles, if we stay focused on our goals, it puts us in the best position to stay on track over long periods of time.

So as you think about these lessons as we navigate the markets and the volatility that's likely to come, and keep our eye on the long-term opportunities that exist, use this as a chance to talk with your Edward Jones financial advisor about reviewing your goals and opportunities to ensure that your portfolio remains aligned with those goals to help you achieve what's most important to you over the long term.

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