Next up is a question from Ashley. She says the start of the year has been better for the Stark stock market than last year. Do you think the bear market or recession is over, and the recovery has started? If so, what should a financial mutant be thinking about or taking advantage of right now?
I’ll take the first part, and you did the second one. How does that sound?
I don’t know if the bear market is over. No pressure, right? The hard part about markets is that no one knows when bear markets start or stop, or how long they will last. Sometimes the market recovers quickly, and sometimes it doesn’t. On average, coming out of the last few bear markets, in the first month of recovery, the market makes back about 15-14% on average. In the first year of recovery, it makes back about 42%.
If we think about the market hitting a downturn somewhere in the December timeframe and hitting the bottom, the market has made back some of that money. It may have made back about 14% in this first month since that downturn. However, we don’t know when bear markets start or stop, and trying to base your financial decisions around them may be futile.
In light of that, how should someone approach their saving right now? The market is better off this year than it was last year. Have we missed the boat? Should we wait until the next downturn for buying opportunities? I think you have to know that nobody’s going to know where we are in the economic cycle and the recoveries until the historians look back and tell us. We can give you indicators and show you all the historical stats, but here’s a solution I tell people:
Always be buying. You need to create automatic habits that will create success for you, especially if you’re in the wealth-building part of your journey. If you’re 20, 15, or even 10 years from retirement, set it and forget it. Make that plan work. If you’re stressed about this and closer to the retirement date, go stress test that plan so that you can figure out if it has some ramifications. Revisit what your asset allocation looks like and make sure you’re doing it right.
It’s important to have these discussions and create a conversation. But we have the same conversation with clients. If we made money in the fourth quarter of 2022 and are up in the first part of 2023, that’s great. But we don’t know if we get to keep it yet. If you practice what we talk about with knowing what your money’s purpose is, when you need it from a cash flow perspective, and whether you’re in the wealth-building or wealth-keeping part of your journey, you can always be buying as you are on that journey up.
There’s a great quote by Nick Murray that says, “If you think that the market is high right now, wait till you see it in 20 years.” If you can be a financial mutant and compartmentalize that, it doesn’t matter if the market goes up or down tomorrow. What you’re banking on is that when you need those dollars 10, 20, 30, 40, or 50 years in the future, you feel pretty confident they will be worth more than they are today.
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