Dave and Steve mark the one year anniversary from the bottom of the stock market’s COVID decline. How far has the market recovered since the March 23rd, 2020 low? They look back on the feelings we all had and the actions that many of us took (or didn’t take) in our portfolios. What would you have done differently? And how can the lessons of the last year help you prepare for next time?
Steve:
All right. Welcome to Plan for Life Now, episode number 78. Dave, this is the big one-year anniversary. One year ago today, was the bottom of the Coronavirus decline.
Dave:
Right. When you first said that, I’m sure people are thinking, “One year ago today, my life began to suck.” And now we see the light at the end of the tunnel. But yeah, so this was a… I’ll let you go ahead and set it up.
Steve:
Well, I was going to say for most of us the one year since everything shut down, in my household at least, we think back to March 13th was the last normal day. When the kids were still in school. And then it was going to be, schools are going to be closed for two weeks. And how naive does that look now, that we said, “Yeah, schools will be closed for two weeks.”
Dave:
Two weeks, two years, whatever. It’s just a word.
Steve:
Yeah, we were saying, “Well, they’ll definitely have them back before the end of school because we want to do all the end of the year things and send offs.” My daughter was in fifth grade, send her off from elementary school in style. Not even close. But what today marks for the stock market, which for the stock market this is a bigger deal, is the one year since that low in the market. And the lack of any better term that I’ve heard anybody else use, I guess we’ll just call it the Coronavirus decline, the “Corona decline.”
Dave:
I was going to call it the “COVID bottom.”
Steve:
“COVID bottom.” All right. Now. So let’s just run through the numbers real quick. And I went through some of the emails and charts and all of that stuff that financial advisors love to send to people to hopefully make you feel a little bit better as things were crashing down.
Steve:
So I went back and looked at some of those charts that we sent. I thought it was kind of interesting just to compare some of these historical declines to what we’re looking at right now. So let’s just run you through the numbers. And if you’ve been in one of our review meetings recently, if we’ve done this with you, you’ve probably heard a lot of this stuff.
Steve:
So of course from February 19th, through March 23rd, the stock market was down just a little bit shy of 34%. And of course, when we talk about the stock market, we’re talking about the S&P 500, so 33.92% decline. We can now sit here 12 months later and say that the stock market is up over 75%, which is pretty incredible because if we think about the sentiment and the feeling that we had 12 months ago today, it was pretty bad. And we remember there was discussion, there was talks about, this is going to be the next Great Depression. It’s possible we have millions of people dying. We have unemployment in the 20% range, that’s a possibility. There were a lot of very dire predictions at this point.
Dave:
And emotionally boy… I said this before on the podcast, I think. I was a history major, not a finance major, a zillion years ago when I was in college. But I always liked to feel historical things. I always try to remember, it’s almost like a diary that… I don’t really have a diary, but I keep it in my head. That feeling on this day a year ago. And you know what, honestly, for anybody, the emotional feeling you had was a sense of, I don’t want to say panic, but definitely anxiety bordering on not panic, but you knew, at least I felt, this was something I’ve never seen before. And there’s some serious anxiety here because this is a serious issue. This was not a time to feel settled, confident, or any positive word. It was definitely a feeling of, I’m not going to say panic because I wasn’t panicked, but definitely high anxiety, sure.
Steve:
Yeah, absolutely. And I think you’ll admit Dave, and I’ll admit, we felt anxiety. I’m not going to sit here and say, “Yeah, I felt great about things.” We’re down 34% in slightly over a one month time period? No, nobody felt great about that. Even if we can look at our overall portfolios, and certainly this is the mindset and this is the discussion we had with a lot of people at the time is, yeah, this is terrible. We just lost 34% in a little over a month. That’s terrible, but here’s why you’re okay. Because you’ve got this much guaranteed income coming in, you’ve got this much in, in fixed products like bonds and cash and things like that. That obviously didn’t decline by 34%, that more or less held their value there. And we could have that discussion with people and say, “Listen, as long as the market recovers in the next six or seven years, you’re going to be okay.”
Steve:
And logically, that makes a lot of sense, but it’s still painful to look at statements, to look at your account values and see them down so much. And just to give you some historical context to when we talk about this decline, and we had this comment early on in the decline where people would say to us, “Gosh, guys, this one felt worse than other declines.” And of course we go right back to the financial crisis in 2008. People think about that one. And then if you go back and search your memory a little more, you go back to the tech bubble in the early 2000s. So those are the ones in recent memory that we can look at. And if we look at the financial crisis, that was a decline of 56%, over 56%. The tech bubble was the decline of over 49%.
Steve:
So just on pure numbers, you would look at that and say, “Well, this one wasn’t as bad.” But the point that I make is where this really sets itself apart is that was a decline of 34% in basically a month. The financial crisis went from October of ’07 to March of ’09. So you’re talking about a year and a half to lose 56%. Same sort of thing in the tech bubble, you went from March of 2000 all the way to October of 2002. So you’re talking about two and a half years there to lose 49%. We’re talking about 34% in slightly over a month.
Dave:
Yeah, well, both are bad. I can almost make an argument that 2000… My argument is from the standpoint of an investor or one of our clients, that 2008 the dilemma was, it kept going on for a long time. Should I get out now and then go back in when things get better? Which we know is the recipe for complete disaster.
Steve:
Yeah.
Dave:
This one was more like… So you had more time to sort of keep thinking about that. This one was, it was so dramatic that it’s more like, “I need to get out now. What happens if it goes to zero?” Type of thing. It’s almost like a race car versus a car that doesn’t go from zero to 60 so fast. You just had to hold steady while things were plummeting so quickly.
Steve:
Yeah. I’m just looking at this daily chart here. Maybe I’ll post this down below, the link here for the podcast. But this is just a daily chart and this is just going from March the 9th. So I’m just going to read these off real quick, March the 9th, negative 7.6%. March 10th, up 5%. March 11th, down 5%, then down 9.5%. Up 9%, down 12%, up 6%, down 5%, up 0.5%, down 4%, down 3%, up 9%, up 1%, up 6%. I just read through there from March 9th through March 26th, that was some of the wildest… You saw a negative 12% in there, negative 9%.
Dave:
Crazy.
Steve:
Once again, for some historical context, those were two of the six biggest declines in the history of the market. So you certainly lived through some wild declines there.
Steve:
And when we were, like I said, we were providing people with historical context and showing them, okay, I know this time is different. That’s the famous quote. The most dangerous words in investing are, “This time is different.” And there’s also sayings about history doesn’t repeat itself, but it rhymes. Basically saying it’s not the same, but there’s a lot of similar sort of things that will happen. And of course this time around people were saying, “Listen, we haven’t had a global pandemic like this before. Yeah. I know we’ve had financial crisis and we’ve had tech bubbles and we’ve had oil embargoes and hyperinflation, and we’ve had world wars, but we’ve never in the modern history of the stock market, 1929 to now. We’ve never had a global pandemic.” Logically, that’s a good reason to say this time is different. But once again, this time is different proved to be very dangerous.
Dave:
Correct. It was different, but it was also the same and the same is new crisis. But you know what? Capitalism, which actually is kind of tied to darwinism because it works the same way. In this one, it very much sorted out very quickly the winners and losers as the dust settled pretty quickly. And then, I wasn’t thinking this, hindsight is easy. Remember I’m a history major, that’s easy, but it’s easy to look back and think, “You know what, the thing that’s driving the market, Facebook, Netflix, Google, all these things. Amazon, they’re all actually okay during something like this.” Easy to look back and say, not at the time when, “Gee, look what’s going on, this is crazy.” But yeah, I think in this, capitalism, darwinism, and the kill or be killed nature of the stock market really showed itself in this one.
Steve:
Yeah. So, like I said, I was going back and looking at some of these charts and I had this folder saved on my computer, on our shared drive that was basically from the middle of March last year. We were digging up some of these historical charts and I’ve got a couple of different ones here, but I thought it was interesting. This one chart was showing the five biggest declines in the stock market. So it was going back to 1929, another one ’37, ’73, ’74. And then, like I talked about, the “.com” and the financial crisis. So those were the five biggest declines in the market. And then it showed the returns one year after, the average return off of those declines was 71%. Pretty close to what we’re looking at right now.
Dave:
What are we now?
Steve:
It’s around 75%.
Dave:
Right.
Steve:
And that’s pretty darn close. And then it was showing here the subsequent… Basically the five years after each one of those.
Steve:
So the average in year two was around 13%, 10% in year three, 26% in year four, 10% in year five. And basically if we look at this matrix of returns here, so the five years after each one of those declines, only two out of those 25 subsequent years there were negative returns. So this is, once again, easy to say in hindsight, but this is the kind of stuff that you should be trying to concentrate on. And I know it’s not easy, but trying to concentrate on and say, “Listen, I don’t know when the bottom’s going to be.” It wound up being around 34%. Some of these declines were 60% and 70%, but whenever the bottom is in, the returns off of the bottom are big. And usually the returns in the subsequent five years are pretty big as well.
Dave:
I would say… Okay. Finish that thought. And then, because I’m getting older-
Steve:
No, I’m done with the thought. I’m done with it.
Dave:
[crosstalk 00:13:56] let’s go and I’d be bummed. It’s a real testament. Most of you listening are clients of ours, I guess some aren’t. I have no idea who’s listening to this, but most of you are probably clients. And our clients were amazing during all of this. And it made me think about the type of client for the most part, that there’s really two types of clients that you have. Almost all of our clients had the same general, philosophical look at retirement planning that we do, or they wouldn’t be working with us. And that means we’ve put together the plan, like you already said earlier, that is going to account for retirement income. That will still be there when the market declines and account for when these investments are down, stocks, you still have bonds and other investments that aren’t and we have a diversified portfolio. But the other scenario is, and this isn’t just us, this will be everybody. How engaged is the client in general as the years go on?Dave:
We have some clients who just, you know what, honestly, maybe they listened to the radio show and they came to the seminars we’ve done. And they liked us and nice people, but they really weren’t interested in money that much besides knowing they needed it and they trust us. And they just, “You know what? I don’t understand this stuff, Dave and Steve, but I trust you guys and that’s that.” And we appreciate those clients and we’re trustworthy so that’s fine. But as the years go on, we’re always trying to educate our clients and remind them what we’ve done. Meeting after meeting, after meeting, here’s our overall plan. Here’s where you stand. Here’s, not just what your investments are and how they’re doing, but why we did these and here’s your overall game plan. And why I think it’s important, similar to going to a dentist, even if you think your money’s fine and you’re not worried and you don’t want to bother Dave and Steve, which makes no sense since you’re paying us.
Dave:
But always at least do an annual meeting with your financial advisor, because it will reset where you are. It’ll remind you what you have, why you structured things. So when situations like a year ago today happen, you are in a much better intellectual and psychological position to understand things and to not make a move that would be emotional and wrong. And then to ultimately reap the benefits of today. One year later. That’s really what it’s all about.
Dave:
You could say, “Wow, Dave and Steve are great. I started with them in 2000 and whatever, 2007. And I’ve been working with these guys for whatever, 14 years. And they’re great.” Well, ultimately the bottom line is it’s you, the client, that has been educated, has been through major ups and downs in say a 14 or 15 year period. But in general, stayed the course to ultimately reap the benefits. Because right now all of our clients who’ve been clients for a while have reaped the benefits. And it’s not just because we picked the right investments and stuff like that. It’s also, there’s an emotional component and I congratulate all of you on dealing with that emotional component.
Steve:
Yeah, no, I think you really make an excellent point, Dave, because we’ve had these discussions that we’ve done these podcasts before, about what is the value of a financial advisor. And there’s been a lot of research and studies done about, how do financial advisors add value? And some people, their immediate response is, “Oh, they pick good investments for me. My financial advisor, oh, they pick great investments.” I hope they pick good investments, but that’s not truly where the real value is. The real value of a financial advisor, of course there’s the planning benefits, saying, “Okay, you should take money from this account not from this account. You should do Roth conversions and you should delay taking social security and you should structure assets like this.”
Steve:
But there’s also a big benefit to making sure that in times like last year that you don’t feel forced to sell your stocks when they’re down 34%. Now there’s tremendous value to having this plan in place and saying, “This is painful. And I know Dave and Steve told me stocks can lose money and will lose money from time to time, but I’ve got the pieces in place and I understand them well enough. Maybe I’m not an expert, but I understand the well enough that I know that I don’t have to sell stocks right now.”
Dave:
And this last crisis was the best example of it. For as precipitous as the decline was, the up swing was just as fast.
Steve:
Yeah. It was the fastest recovery-
Dave:
A couple days of that would cost you a great deal of money in the long run for your retirement plan versus not making that decision, emotionally, to get out for a while or [crosstalk 00:19:12] for a while. “Oh, no, I’m not panicked. I’m just moving into cash for a while.”
Steve:
Right.
Dave:
Or any of these things that your brain wants to emotionally tell you. It’s so easy in hindsight and so difficult in the moment. So like I said, I’m talking to a group of people who I already know what’s happened, statistically. So again, this is more of a congratulations to the client and it’s not even… We’re going to do whatever you tell us to do, ultimately. We can remake our recommendations. We can be firm in our recommendations, but it’s your money.
Steve:
Right.
Dave:
So ultimately it’s your decision, but our group did a heck of a job. I’m very, very, very proud of our clients.
Steve:
Yeah. And I think this has been a natural question that some people have asked and I’ll even give credit to one of my clients, Dave. She was asking me this question last year, probably in May or so. And she asked me, she said, “Did the pandemic of 1918, 1919, and obviously the first World War, did that lead to the Roaring Twenties?” And I didn’t have a great answer at the time because I guess I wasn’t as well versed in that history as I am now, but I don’t think I told you this. I just finished reading this book about the 1918, 1919, Spanish flu pandemic called The Great Influenza by this guy John Barry. And you’ve probably seen him quoted a lot because as the Coronavirus has gone on, he’s been quoted by a lot of different media outlets.
Steve:
And it really did, the whole difference with the Spanish flu and the pandemic back then, which by the way, after reading this book sounds so much worse than the Coronavirus. Just how violent this was, that the people were getting sick and just, there’s blood coming from everywhere. It was pretty horrible. But really what contributed, partially, to the mindset at least of the roaring twenties, there’s a lot of things that went into it, was the fact that the Spanish flu really hit people in that 18 to 40 range, particularly hard.
Steve:
So people in that 18 to 40 range and even more precise, in that 21 to 30 range. That was where the mortality rates were the worst, which is very strange. It’s very different than certainly in Coronavirus where 65 plus is obviously the worst ages. For the Spanish flu, people in those younger age ranges, in some areas the mortality rates were something like 10%, which is just crazy. So you had the World War One ending and you had the Spanish flu pandemic. And that certainly led to this feeling of, “Hey, I’m alive. I survived this. So now I’m going to go out and I’m going to live it up and be crazy.” And I don’t think you have that same feeling, at least in those younger groups this time around.
Dave:
I don’t think you have that same feeling either. I’m not… The roaring twenties was also, it’s just a completely different era. Now, I think people will get back to doing stuff.
Steve:
Oh yeah.
Dave:
But it’s different than going crazy and things like that. But that’s interesting. I’d never even… That one I was not familiar with. How we go forward? I’m not sure. We’re never sure.
Steve:
Yeah. Anybody we’ve met with recently, we’ve talked about what are the issues going forward? Obviously, everywhere you turn nowadays, they’re just coming out with rosier and rosier projections for the economy. That, “Oh, we’re going to grow by 6%. We’re going to grow by 7%. Best GDP we’ve seen in 40 years.” All this stuff. And of course that’s coming on the heels of last year, which was quite bad. And the thought processes is that we’ve got this pent up spending. That we haven’t been able to spend money and go travel and do things so there’s going to be this pent up spending.
Steve:
And I think some of that will come true. I don’t know to what extent, but the bigger questions are, how much longer does the Federal Reserve keep these ultra low interest rate policies? How much longer does the Federal Reserve continue these asset purchases that they’re doing and can they, or do they have the tools to control inflation if inflation starts to creep in? Will that really be a problem? And then I always feel like the larger question long-term has to be, now that our national debt is what are we at $28 trillion, something like that, at what point do we see higher taxes? At what point do we have to take some steps to finally address that?
Dave:
Right. And I think that we are going, we’ll address this in future podcasts because we’re going a little long now, but I think we’re… Stuff we already do is how can we make the most out of what’s going on with the tax laws or the investment side of things? I think the tax thing is going to be, it’s either going to be a small, extra issue or a larger one quite frankly, based on whatever. And as we always say, we’re not political here, but in this case it would be whatever Biden administration can get done and Democrats for taxation. The more that they have in there, the more it’s going to be important to the plans for that. And I think that’s going to be an issue for… A tangible issue, in the near future for our clients.
Steve:
Yeah. Well, congratulations to all of you out there for surviving to the one-year anniversary of the Coronavirus decline. I know all of us can look back and have a little bit twinge of regret over investments that we didn’t make over the last year. That’s easy to do, but I think we should all be thankful, for the most part, that our clients did not sell, were not panicking and getting out and stuff like that. And that we’re able to participate in at least some portion of this recovery from the decline.
Dave:
Yes, indeed.
Steve:
All right. Thanks for tuning in. We will check in again with you soon.
