Last week, after we put out the blog titled A Disaster in Real Time, an Opportunity in Retrospect, a retired client pointed out that it would be useful to get further perspective on the historical record of market downturns. Specifically, how long did each downturn last, and what was the recovery time.
Here is a table detailing that information for the four periods discussed in last week’s blog.
Total Stock Market Index1
Downturn Time to Market Bottom Recovery Time Total Time Underwater
Jan 1973 – Sept 1974 1 year, 9 months 3 years, 1 month 4 years, 10 months
Sept 1987 – Nov 1987 3 months 1 year, 6 months 1 year, 9 months
Sept 2000 – Sept 2002 2 years, 1 month 3 years, 7 months 5 years, 8 months
Nov 2007 – Feb 2009 1 year, 4 months 3 years, 1 month 4 years, 5 months
This is the reason those with short-term time goals are counseled not to put short-term money into the stock market. For those who are retired and drawing from their portfolios, this is also the obvious reason why holding a balanced, diversified portfolio, along with a cash cushion, is recommended.
Yes, history has shown that what seems to be a disaster in real time has absolutely turned out to be an opportunity in retrospect. But to realize that opportunity, we must stay in the game. We all just need to make sure that we are well positioned – financially and emotionally – to get through the storms when they occur.
If you have any questions on this matter, please give us a call.
1 - The Dow Jones U.S. Total Market Index (DWCF) is a market-capitalization-weighted index Dow Jones Indexes maintains that provides broad-based coverage of the U.S. stock market. The Dow Jones U.S. Market Index, considered a total market index, represents the top 95% of the U.S. stock market based on market capitalization.