Investing through recessions and recoveries: Lessons from history

The bear market decline earlier this year was unique in its catalyst (global pandemic) and speed (fastest 30% drop on record), but bear markets themselves are not abnormal. And the good news for investors is that every previous bear market in history has been followed by a recovery and new bull market – a pattern we do not expect to be broken this time.
Market downturns are never pleasant, and while it's nearly impossible to avoid them, past experiences show they don't have to derail your journey toward your financial goals. Here are three lessons from history that can serve as a valuable guide:*
Source: Morningstar Direct, S&P 500 Index, Ibbotson Large Cap Stocks TR index, Bond Fund of America F1, Bloomberg Barclays US Agg Index, Edward Jones calculations. The 65/35 portfolio consisted of 35% American Bond Fund and 65% Ibbotson Large Cap Stocks TR Index from 1975 – 1980. From 1980 onwards, 35% bonds are represented by the Bloomberg Barclays US Agg 1/1/1975 - 5/31/2020.
Past performance is not a guarantee of what will happen in the future. Indexes are unmanaged and not available for direct investment. Performance does not include the payment of any expenses, fees or sales charges, which would lower results.
This graph shows historic stock market declines since 1975, and what a portfolio would look like if $10,000 were invested at that time with 65% in stocks and 35% in bonds. There were five major stock market declines between 1975 and 2020 with resulting drops in the S&P Index including 1981, with a 27% drop; 1988 with a 34% drop; 2000-2002 with a 49% drop; 2008 with a 57% drop; and 2020 with a 33% drop. This illustrates how, over time, the market has quickly recovered after each bear market and the value of the 65/35 portfolio has continued to grow, nearing $1 million in value in 2020. This graph also shows how the market is already recovering from its most recent decline.
Talk with your Edward Jones financial advisor to review your financial goals and about opportunities to keep your portfolio aligned with those goals in the future.
Craig Fehr is a principal and the leader of investment strategy for Edward Jones. Craig is responsible for analyzing and interpreting economic trends and market conditions, along with constructing investment strategies and and asset allocation guidance designed to help investors reach their financial goals.
He has been featured in Barron’s, The Wall Street Journal, the Financial Times, SmartMoney magazine, MarketWatch, the Financial Post, Yahoo! Finance, Bloomberg News, Reuters, CNBC and Investment Executive TV.
Craig holds a master's degree in finance from Harvard University, an MBA with an emphasis in economics from Saint Louis University and a graduate certificate in economics from Harvard.
*Past performance cannot guarantee what will happen in the future.
**Diversification cannot ensure a profit or protect against loss in a declining market.
Investors should understand the risks involved in owning investments, including interest rate risk, credit risk and market risk. The value of investments fluctuates, and investors can lose some or all of their principal.