A Generation Defining Moment

There has been a lot in the news lately about the financial markets describing what is going on in the world today as a generation defining moment comparing this period to the Second World War; global economic shutdown, high inflation and military conflict.

If this is in fact the case, here are a few statistics that might help put things into proper perspective. The S&P 500 was down 38.6% during the first 3 years of the war (1939-1941) but climb 76.4% in the 4 years following (1942-1945). Since then  the S&P500 has been down 21 times in the last 77 years (only 3 times in the last 20 years) including a drop of 46.6% during the tech bubble (2000-2002) and 38.5% in 2008 from the global banking crisis.

On average, the market suffers an annual loss 27% of the time (roughly once every 3 to 4 years) but despite this, if you had invested $100 in the S&P 500 at the beginning of 1945, you would have $384,914.17 today, assuming you reinvested all dividends. This is a return on investment of 384,814.17%, or 11.27% per year.

Assuming things might be a slightly different today than they were in the past, we can be comforted with the fact that history has a tendency of repeating itself thanks to the predictability of human nature.

So what are the key take-a-ways here when it comes in investing and what is the best way to handle the volatility at the moment?

• Be patient (3-5 year minimum investment horizon)
• Be aware of your tolerance and capacity for risk
• Be realistic about your investment objectives
• Be prudent with re-balancing your asset mix of cash, bonds and stocks to match your investment objective
• Be willing to replace your previous winners and your losers to own the new leaders (a valuation re-set from a market correction always provides that opportunity)
• Be sensible. Always own great companies that pay dividends

In closing – although we do not anticipate a recession this year, if one does occur, we believe it will be short lived. We also believe that the S&P500 and the S&P/TSX will recover over the next 6 months to reflect a flat or moderately positive year in 2022.

David J. Angas, CEA
Senior Financial Advisor, Certified Executor Advisor

Information in this article is from sources believed to be reliable; however, we cannot represent that it is accurate or complete.  It is provided as a general source of information and should not be considered personal investment advice or solicitation to buy or sell securities. The views are those of the author, Family Wealth Counsel Advisory Group, and not necessarily those of Raymond James Ltd.  Investors considering any investment should consult with their Investment Advisor to ensure that it is suitable for the investor’s circumstances and risk tolerance before making any investment decision.  Raymond James Ltd. is a Member Canadian Investor Protection Fund.