After suffering losses of 21%, 25% and 35% in the 2022 bear market, the Dow, S&P 500 and Nasdaq 100 all broke even on a total return basis this week:
Of course, that means these markets have done nothing for almost two years, but just look at the returns since the start of 2020:
Considering everything we've experienced, these returns aren't bad at all.
One of my least favorite phrases when it comes to investing is that it's easy money.
Making money in the financial markets is never easy.
You are forced to deal with constant uncertainty, volatility, fear, greed and an endless stream of noise.
It only ever feels easy in the rearview mirror.
Just think of everything investors have had to deal with in recent years:
- The pandemic caused us to shut down the economy for 1-2 months in spring 2020.
- The unemployment rate rose to 14%.
- We had no idea how long the pandemic would last or when we would find a vaccine.
- March 2020 was one of the worst months in stock market history.
- Interest rates fell to historic lows.
- Oil prices went into the red.
- We experienced the fastest bear market ever, ranging from all-time highs to a 30% decline.
- Then share prices recovered again.
- There was a meme stock/crypto bubble.
- Inflation recovered from the dead and reached its highest level in 40 years.
- We had a bad bear market in 2022.
- The Fed hastily cut short-term interest rates from 0% to 5%.
- The bond market experienced the worst crash in its history.
- The 60/40 portfolio had one of its worst years ever.
Over the past two years, investors have been inundated with predictions of a recession, a repeat of the 1970s, stagflation, a housing market collapse and worse.
None of that happened.
It's unbelievable how well everything has worked out in the last few years. There are no counterfactuals, but things have gotten much worse.
Yes, the government's fiscal response was immense, but it was not a foregone conclusion that it would work. Certainly no one foresaw this economic outcome in advance.
This was an economic experiment the likes of which we had never attempted before.
Dealing with inflation hasn't been fun, but it could have been far worse considering Russia invaded Ukraine when prices were already spiraling out of control. Inflation could have been even more unpleasant than it has been if the global supply chain had not recovered in a relatively short period of time.
The Fed could have ruined everything by raising interest rates from 0% to 5% so quickly. The reason why so many economists and experts predicted a recession in 2022 and 2023 is because we have never seen inflation fall from such high levels without an economic downturn.
If you injected Jerome Powell with a truth serum, he would probably tell you that there was no way a soft landing was possible 15 to 18 months ago.
The fact that we have succeeded so far is an economic miracle.
Maybe we'll end up in a recession or another bear market in 2024 or 2025 or whenever. It will definitely happen at some point.
Regardless of how things turned out, I want to commend those who stuck with their investment plan throughout this ordeal.
If you dutifully took dollar-cost averaging into account when stock prices fell, then give yourself a pat on the back. You did the right thing.
If you rebalanced your portfolio when stock prices fell, that's a great job.
If you weathered the losses without panic selling at the bottom, that's good work.
If you ignore the people screaming at you every day about how much worse things would get, an outstanding achievement.
If you maintained your asset allocation when people on the internet tried to suggest ridiculous investment options to you, good for you.
If you haven't looked at your 401k balance in the last few years, you'll be better off in the end.
If you didn't do anything to your portfolio because your plan called for it, I applaud you.
Look, time never runs out in the markets. The game never ends. Bull markets turn into bear markets, which turn into bull markets, and it goes on and on.
Everything is cyclical.
Harder times will come our way at some point. There will be crashes that will make the bear markets of 2020 and 2022 seem quaint in comparison.
But sometimes it's nice to sit back and appreciate how you handled certain parts of the cycle.
Staying on track is harder than it sounds.
Further reading:
Everyone is irrational
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