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Financial Planning
Apr 2022

Celebrate Down Markets

By Kevin Mahoney, CFP®, CIMA®

Down markets are unsettling – we watch our life savings eroding before our eyes, frequently with the backdrop of something very disturbing like 9/11, the 2008-09 financial crisis, or COVID-19. Our stress receptors trigger, which impairs our judgment, and often leads to our “fight or flight” response. We tell ourselves, “I can’t afford to lose anymore, and this time is different, so I need to get out” (aka “flight”). We feel the need to save what we have left.

At Integris, we get it, we really do. However, because we want you to be a successful investor, we invite you to try a different paradigm on for size. This paradigm will actually have you excited for and hoping for down markets.

Anchor Yourself to History

First, let us put two stakes in the ground:
1) The market has always recovered from being down
2) The market’s strong historical returns include the down periods

These two stakes need to be our religion in the context of this topic. With those in mind, let’s see why we celebrate down markets.

Shift the Paradigm

Down markets should not affect your financial security so long as your financial plan has accounted for them – be sure yours does.
Down markets offer the opportunity to increase your financial security. Huh? The below table chronicles two hypothetical investors over the last 20 years. Both investors start with $1 million, add $100,000 four times, and have average annual returns of 9.5%. The difference is one investor enjoys smooth, comfortable, linear returns of 9.5% each year, while the other experiences the actual volatile S&P 500 returns, but uses the down periods to make the four $100,000 deposits. As the ending value for each investor illustrates, the more volatile the market, and the more one is willing to take advantage of down markets by investing more money, the more financially secure they should be.

Smooth, Comfortable Returns

(9.5% Annual)

Actual S&P 500 Returns

(9.5% Average Annual)

Date

Deposits

Portfolio Value

Portfolio Value

01/2002

$1,000,000

$1,000,000

10/2002

$100,000

$1,170,381

$818,352

03/2009

$100,000

$2,198,149

$936,399

10/2011

$100,000

$2880,971

$1,620,606

04/2020

$100,000

$6,344,468

$4,525,028

12/2021

$7,439,334

$8,576,270

*The above are hypothetical scenarios for illustrative purposes only, and should not be construed as investment advice

Celebrate! The Markets Are On Sale!

It is uncommon to have extra cash to invest when the market is down, so Integris manufactures the scenario in our managed portfolios. When the stock market drops meaningfully, it is frequently opportune to take money out of assets that have been much more stable, such as bonds, and redeploy it into stocks – in other words, buy low, sell high. This leverages market downturns for greater returns than had the market just steadily progressed. We are confident the market will provide favorable returns over time, so we delight in the occasional opportunity to pick up more of a good investment at cheaper prices along the way. We encourage you to share in this delight despite the voice in your head potentially screaming at you to “save yourself.”

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