Why Bear Markets Matter More Than You Think

investing.com:

Compound market returns: During bullish markets, there is inevitably a regurgitation of this myth that was contrived to extract capital from retail investors and place it in the hands of Wall Street.

However, the compound market returns myth was contrived from the myth that “markets always go up,” therefore, it is ALWAYS a good time to invest. How often have you seen the following S&P 500 chart presented by an advisor suggesting if you had invested 120 years ago, you would have obtained a 10% annualized return?

It is a true statement that over the very long term, stocks have returned roughly 6% from capital appreciation and 4% from dividends on a nominal basis. However, since inflation has averaged approximately 2.3% over the same period, real returns averaged roughly 8% annually.

The obvious problem with that statement is that you don’t have 123 years to invest, that is, unless you have discovered the secret to eternal life or are a vampire.

For the rest of us, mere mortals, time matters.

Let’s revisit the chart above, add valuations, and review the market’s various “life-cycle” periods. As you will notice, when valuations were previously elevated, the future price action of the markets was negative until that overvaluation was reversed. 

When I give lectures and seminars, I always take the same poll:

“How long do you have until retirement?”

The results are always the same. The majority of attendees responded that they have about 15 years until retirement. Wait what happened to the 30 or 40 years always discussed by advisors?

Think about it for a moment. Most investors don’t start seriously saving for retirement until their mid-40s. This is because by the time they graduate college, land a job, get married, have kids,