Client question of the month

Is it different this time? 

Yes, but it’s always different. When there are declines or volatility in the market, it’s natural to question if the period we’re experiencing today and moving forward is distinct from what we’ve experienced in the past. Rather than grasping for unknown answers, it may be better to consider what we know.

• Instead of trying to predict the future, we can look towards the past to gain insights. Each time the market has experienced uncertainty, whether it was the stagflation of the 1970s, the Dot Com Crash, the Great Recession, or the global pandemic, investors have wondered if was different this time. While history doesn’t necessarily repeat itself, it often rhymes. Each crisis or economic slowdown feels frightening in the moment, but historically, markets have rewarded longterm investors. If you find yourself questioning if this moment is different, ask yourself if there is something fundamentally different about the way markets work.
• While headlines about inflation, interest rates, and staffing shortages are scary, markets are still functioning. In 2021, the average daily trading volume in equities was $775 billion. Buyers and sellers are continuing to trade. Each dollar traded reflects buyers and sellers’ expectations.¹
• Markets are forward-looking, so it’s the unexpected news that will impact prices. Any optimistic or negative expectations have probably been incorporated into market prices. If your cousin is telling you to get out of the market because they heard it was going to get worse, chances are other investors have heard the same thing from their own cousin.
• A long-term perspective can help even if your time horizon is short. US equity returns following sharp declines have, on average, been positive. Intra-year declines don’t necessarily mean your portfolio will be down by the end of the year. This is true for fixed income as well as equities. From January 1976 – June 30, 2022, 23% of the time quarterly returns of the Bloomberg US Aggregate Bond Index were negative. Only 4 of the calendar years during that same period had negative returns.²
• Trying to time the market can be as risky as it is tempting. Missing out on even a brief period of strong returns can dramatically impact your investment experience.

1. In US dollars. Source: Dimensional, using data from Bloomberg LP. Includes primary and secondary exchange trading volume globally for equities. ETFs and funds are excluded. Daily averages were computed by calculating the trading volume of each stock daily as the closing price multiplied by shares traded that day. All such trading volume is summed up and divided by 252 as an approximate number of annual trading days.
2. For illustrative purposes only. Index is not available for direct investment; therefore, its performance does not reflect the expenses associated with the management of an actual portfolio. US Stocks represented by the S&P 500 Index. S&P data © 2022 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. US Bonds represented by Bloomberg Aggregate US Bonds Index. Bloomberg data provided by Bloomberg. All rights reserved.