How should you invest in a down market? If you want a guidepost, let’s look back to the terrible, traumatic down market of 2008-2009. You’re going through relentless, daily and weekly losses (remember that?), and the feeling at the time was that the global economy had suffered a mortal blow. So you get to the bottom in March of 2009, and what do you have to look forward to?
You are looking forward to the longest-running economic expansion in modern U.S. history, with a stock market that has quadrupled. Inflation is basically non-existent despite unprecedented monetary policy actions from the Fed, and the unemployment rate has fallen from a scary 10% down to 3.7%.
The period following the Great Recession, when the future looked so gloomy, was actually pretty bright.
Of course, you’re worried about the next recession and major market downturn—as are we all. But history so far has rewarded investors who are willing to remain invested through the declines. Recessions come and go, but they don’t typically last as long as our memories might lead us to think. The economy has been in a recession roughly 15% of the years since the last world war, and in expansion 85% of the time. If we spend 85% of our time focusing on events that happen 15% of the time, instead of the other way around, it can lead to terrible investment behavior. Investing under the assumption that the next recession or downturn is right around the corner means you will always be positioned too defensively.