More people are worried about the market than a month ago, according to recent report (Oct. 1, 2015) by Spectrem Group.
Last month, 27 percent of affluent people surveyed responded that "market conditions" were the most serious threat to achieving their household's financial goals at this time. That's up from 17 percent three months ago, when this question was last asked. Who are the affluent? Households with $500,000 net worth, excluding their homes.
Millionaires are usually more "upbeat," according to Spectrem's president, George Walper Jr. Millionaire households have $1 million or more in net worth, excluding their homes.
But after Aug. 24, they are concerned about China and the Federal Reserve's position on interest rates, explained Walper. (The Dow Jones industrial average fell 3.6 percent on Aug. 24.) Since May 21, when the S&P 500 index closed at 2,130, the market has declined close to 10 percent. Year to date, the market has declined almost 7 percent.
Millionaires have been "uncharacteristically cautious and wary about the markets in the past few weeks," according to Walper.
Since 2004, when Spectrem began these surveys, both affluent and millionaire respondents proved to be "extremely sensitive to market volatility," explained Walper. Spectrem(www.spectrem.com) research focuses on understanding the "Voice of the Investor."
According to Howard Silverblatt of S&P Dow Jones Indices, we are still in a bull market that started in March of 2009. The S&P 500 closed at 676 on March 9, 2009. More than 78.8 months later, on Oct. 1, 2015, the S&P 500 closed at 1,923.8, a bull run of 184 percent.
A few other bulls have lasted longer (for example, 113.4 months from 10/11/1990 through 3/24/2000), according to Silverblatt. But on average since the 1920s, we're talking about a run of 58 months — not that averages should dictate investor decisions.
So, here is the question: Should you be prepared for a bear?
As a money manager who works with investors who want to retire someday, I believe you should always be prepared for down market periods. That's just how markets work. Individuals have another element to be aware of during their lifetimes, and it's the effect of time. Each of us has a personal stock-market timeline that we do not choose for ourselves. We "inherit" a historical time frame during which we invest.
A 25-year-old has 40 years until retirement. That's a very long time frame to put to work in the stock market. If you looked at all of the 40-year chunks of time since the 1920s, none resulted in bad outcomes. The worst-case scenario produced an annualized return of more than 8 percent.
Over long periods of time, daily volatility becomes meaningless, unless mistakes are made.
The biggest mistakes can be made by someone who is making a life transition while markets are declining. For example, someone who is going through divorce or widowhood, selling a business or a home, or launching into retirement has to be especially cautious about decisions made in any type of market.
Planning is essential, and the planning has to include an understanding of desired outcomes — just what do you want your money to do for you now that you are embarking on a transitional move into a different type of lifestyle?
We'll talk more about how to think of the markets when planning for the future. Send your questions email@example.com. If you would like a table showing bull and bear market data, let me know.