Using Experience to Navigate Uncertainty
As we wrote in a recent email to clients, there is heightened uncertainty surrounding U.S. economic policy, foreign policy, and many aspects of the government’s structure and functions. The sheer volume of executive actions and policy changes are difficult to track, and for some readers, the changes may feel overwhelming.
We empathize with the challenges some of you may be experiencing as a result, whether those challenges be personal, professional, or both. In our capacity as your financial advisor, please let us know if we can help in any way.
Almost exactly 25 years ago to this day, Kari and I were in the very early stages of building what is now RSMA Wealth Management. It was just the two of us—me with my deep investment management background, and Kari with tax and planning expertise as a CPA. We felt very confident in our ability to serve clients and to help people achieve their financial objectives.
Then the tech bubble burst.
From March 2000 to October 2002, the Nasdaq fell -77% and the S&P 500 declined approximately -49% from peak to trough. The U.S. economy entered a recession in March 2001 that lasted about eight months, and in the depths of that recession we experienced the 9/11 terrorist attacks.
It would not be sincere to say that Kari and I remained optimistic and hopeful throughout that period. The transformational potential of the internet felt diminished, the U.S. had entered a new war, and stocks had been battered down. We were not exactly beating the drum of positivity to our clients.
But we did keep our focus on the long-term.
At the risk of sounding really old, Kari and I had been around long enough at that point to know that if you wanted to be a successful long-term investor, you had to acknowledge—and accept—that bear markets, recessions, wars, and political uncertainty came with the territory. The S&P 500 Index has generated long-term, average returns of roughly 10% per year (starting in 1950), but those returns never happen in a straight line.
From 1950 to 2024, stocks’ best year gave investors a +52% gain, while the worst year saw a decline of -37%. As an investor’s holding period gets longer and longer, however, annual total returns become less volatile. Over that 74-year stretch, there was not a single 20-year period when a portfolio of stocks or bonds produced a negative return. On average, stocks delivered an average annual return +11.6%.
Going forward, our default expectation is that crises and recessions will continue to happen in the U.S. and globally. When Lehman Brothers failed in 2008, investors naturally wondered when—or even if—the U.S. economy would recover from the crisis. By March 2009, however, the stock market was back in rally mode as leveraged risk flushed out of the system and broad liquidity measures buttressed the financial system. The economy took years to recover, but it eventually powered forward again.
Many crises have emerged since. We’ve navigated the European sovereign debt crisis, the Covid-19 pandemic, a U.S. regional banking crisis, surging inflation and interest rates, Russia’s invasion of Ukraine, and so much more. At every turn, we’ve been in our clients’ corner, guiding you through the ever-revolving door of uncertainty and volatility, and keeping our focus on your short-, medium, and long-term financial objectives.
There is no way to know what the next crisis or recession will look like, only that it’s almost certain to happen. Our clients can have confidence that we will respond as we have in the past—by re-affirming our commitment to taking a long-term view of your financial goals, and guiding you through the steps needed to take to reach them.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested in directly.
Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal, and potential illiquidity of the investment in a falling market.
Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise. Bonds are subject to availability, change in price, call features and credit risk.
The S&P 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on the NASDAQ stock market.
Investing involves risk including loss of principal. No strategy assures success or protects against loss.
