Market Pull Backs: Painful in the Short Term, Normal in the Long Run

Contributed by: Nick Defenthaler, CFP® Nick Defenthaler

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As I’m sure you’ve noticed as of late, global markets have not been very cooperative with investors. It almost seems like a broken record from past market declines when you turn on the television or read the paper and the majority of headlines you see and hear about are market driven – many with a “doom and gloom” sentiment. While market declines are rarely a fun thing to experience, they are normal, virtually unavoidable and come with the territory if you want to be invested long-term with the goal of growing your portfolio. To be honest, I think we’d be more nervous if they didn’t occur! Pullbacks like we’re experiencing right now tend to bring things back to reality a bit and keep markets in check. Although some pain can be felt short-term, typically investors are rewarded for going through such rollercoasters when things eventually improve. 

Check out the graph below provided by JP Morgan which tells an intriguing and comforting story over the last three and a half decades. Since 1980, every single year experienced a market pull back at some point which averaged -14.2%. However, over the course of those 35 years, 27 of them ended the year in positive territory! I really think this helps to put things in perspective when the markets get rocky, like we’re currently experiencing.    

 This chart is for illustration purposes only. Past performance is not a guarantee of future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions.

This chart is for illustration purposes only. Past performance is not a guarantee of future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions.

Also keep in mind that the chart above is for a 100% stock index. When you utilize a more diversified, balanced portfolio strategy, like the majority of our clients, the effect typically means less volatility which in turn translates into less potential upside required to get back to where we were before the selloff. To use a baseball analogy, we’re focused on hitting singles and doubles because those are what usually lead to actually scoring runs. Those who swing for the fences and hit occasional home runs or grand slams are usually the ones who have the most strike outs and worst batting averages. 

The bottom line is this – while market pullbacks can make us nervous and uneasy, they’re a completely normal part of the market cycle. As an investor, staying true to a disciplined investment process and keeping your long-term goals in mind should help get you through the difficult times and put you in a strong position when things recover.

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc.® Nick works closely with Center clients and is also the Director of The Center’s Financial Planning Department. He is also a frequent contributor to the firm’s blogs and educational webinars.


The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Nick Defenthaler and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Diversification and asset allocation do not ensure a profit or protect against a loss.