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As someone who is nearing retirement or currently retired, your comfort often comes with knowing that your financial security is in order. But, when stock markets crash 20, 30 or even 40%, you will likely ask yourself the question: Do I have enough time to recover what I’ve lost within my investment portfolio?
Hi, I’m Mark Fonville, Financial Advisor and certified financial planner at Covenant Wealth Advisors, and I’m going to walk you through some important considerations when thinking about the answer to this question.
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Clearly, we all hope that our investment portfolios will continue on an upward trend indefinitely into the future. But, the truth is that stock markets always pull back and the timing of when stock markets will fall is always unpredictable. Sure, there are always a handful of people who “predict” a stock market crash. But the law of large numbers suggests that with enough forecasts, there will inevitably be someone who accurately predicted a stock market crash or correction in the first place.
This doesn’t mean that they had a crystal ball or were smart. It simply means that raw chance alone should always deliver a handful of people who accurately predict the stock market’s direction. That’s why traditional wisdom of staying invested for the long-term is so important.
For investors who are wise enough to focus on the long-term and remain invested through these difficult times, how long does it take for markets to recover after they fall 20, 30, or even 40% or more? After all, do you really have enough time for your portfolio to recover?
Diversified stock markets have always recovered for as long as we have data. That isn’t to say that Armageddon won’t happen in the future and past returns are certainly no guarantee of the future, but research suggests that the odds of markets eventually recovering is very strong.
Take a look at the chart in front of you as an example. You can see three important insights here:
First, stock market pull backs since 1956 lasted on average just under 1 year. Some stock market crashes were worse than others. For example, the crash of 1987 only lasted three months whereas the tech crash from 2000 to 2002 lasted two years and six months.
Secondly, stock market recoveries, also known as bull markets, lasted much longer than stock market declines or bear markets. While this isn’t always the case, it’s an important fact.
Thirdly, recessions often occurred during stock market declines. But there are periods where a recession occurred, but stock markets still went up.
So, how long does it take for stock markets to recover? The data shows that since 1950, stock market pullbacks typically recover their losses within 19 months of markets bottoming out on average. When stock markets decline less than 22%, the average recovery was only seven months. However, when stock markets decline more than 22% as they have this year, the recovery took an average of 27 months to recover.
While looking at the average recovery time for stock market crashes can be helpful, nobody knows how long it will take future stock market declines to recover. At Covenant Wealth Advisors, we believe that you should have a time horizon for investing of ten years or more if you want to invest in stocks. This is based on over a hundred years of data. If you don’t know what your time horizon is in the first place, or if you need personalized advice on your portfolio, call us at 888-320-7400 . We’re happy to help create and implement an investment plan that’s tied to your life plan.
Thanks so much.
Disclosures
Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital.
The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place.
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