The stock market continues its impressive run this year.
However, it's crucial to remember what truly matters when the market crashes.
Louis Rukeyser, host of PBS's classic financial show "Wall Street Week", eloquently put it like this after the stock market crash of Black Monday in 1987:
Ok, let's start with what's really important tonight. It's just your money, not your life. Everybody who really loved you a week ago still loves you tonight. And that's a heckuva lot more important than the numbers on a brokerage statement. The robins will sing. The crocuses will bloom. Babies will gurgle. And puppies will curl up in your lap and drift happily to sleep. Even when the stock market goes temporarily insane.
And now that that's all fully in perspective, let me say, 'Ouch!', and 'Eek!', and 'Medic!'...Meanwhile, let's keep the windows sealed and our hearts calm for in the immortal words of Adlai Stevenson, 'I'm too old to cry, but it hurts too much to laugh.'1
Am I predicting an imminent crash? Of course not. I don't make predictions.
Since 1980, the S&P 500 has gone up more often than it has gone down—ending positive 33 out of 44 years.2 However, market declines are inevitable:
- 10% drops occur roughly every two years
- 20+% declines happen approximately every 7 years
- 30%+ crashes occur about every 12 years3
As a Wealth Advisor, risk management is paramount. It's essential to remember that significant portfolio gains imply the potential for significant losses.
The key is constructing a portfolio that allows you to sleep at night while helping you reach your financial goals.
Remember:
- You are not your money
- Neither a booming nor crashing market should define your identity
- Investment decisions shouldn't be driven by temporary market insanity, whether euphoric or panic-induced
Your investment plan should equip you to enjoy life's simple and extraordinary pleasures from blooms to babies regardless of Wall Street's performance.
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Sources:
A. Image taken from Federal Reserve History article titled “Stock Market Crash of 1987” by Federal Reserve bank of Chicago authors Donald Bernhardt and Marshall Eckblad published on November 22, 2013. Accessed online: https://www.federalreservehistory.org/essays/stock-market-crash-of-1987
1. “After the Crash - Part 1 - Wall Street Week Oct. 23, 1937” on YouTube. Accessed online: https://youtu.be/XFn1G2goDQw?si=M_YNeziSvjRi4ORN
2. JP Morgan’s “Guide to the Markets” (4th Quarter 2024, as of 9/30/24), page 16. Accessed online: https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/guide-to-the-markets/
3. “How Often Should You Expect a Stock Market Correction?”, posted January 20, 2022. Accessed online: https://awealthofcommonsense.com/2022/01/how-often-should-you-expect-a-stock-market-correction/