If you have been paying attention to your investment accounts, you may have noticed that the stock market has fallen dramatically this quarter. The S&P 500 closed at 2,924 on Oct. 1, and by Christmas it was down to 2,351. This represents an almost 20 percent decrease. Consequently, the value of your investments likely significantly decreased. For many, this can be very distressful.
If you were planning on selling your investments in the short term to raise capital for living expenses or some other purpose, this bear market (defined as a drop of at least 20 percent) has probably cost you a lot of money. This is exactly why we recommend our clients do not risk capital they need in the short term.
However, if you were still planning on owning stocks and other equity-based investments in five or 10 years from now, you probably won’t even remember this most recent downward move in stock prices. Does anyone out there remember the last time the market fell 20 percent?
If you had to guess you would probably say in 2008 during the last big recession. In fact, by Jan. 31, 2012, the S&P 500 had fallen almost 20 percent from its previous high. However, following hitting the low point on that date, the index fully recovered to its previous high in just 24 days.
Since 2009, there have been 14 market drops of at least 5 percent and the average recovery time to make a new high has been only 55 days.* If you have been sitting on a large pile of cash waiting for a big correction to create an attractive buying opportunity, stocks are now a lot cheaper than they were at the beginning of the quarter. However, in order to successfully execute this strategy, the cash must be deployed before stocks make another new high.
Please consult with an experienced adviser prior to making investment decisions.
*Fidelity Active Investor
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