“The Market Always Goes Up”… Really?? Coming off the gains of 2016 and 2017, for that matter the gains since 2009, it can be hard not to get caught up in “The Market Always Goes Up” myth. The fact is that the market, OVER TIME, does always go up. The problem is, you don’t know how your 30 year career fits in the market’s time horizon. You have limited time to work/save/invest until you retire and need that money as income on which to live.
There have been 11 major bear markets since the Great Depression. A “Bear Market” is generally defined as a price decline of 20% or more (here’s a list of the 9 largest). There has been a major bear market every 7.27 years on average. That means you should expect 3 to 4 major bear markets in a 30+ year career, with an average loss of 43.8%! That doesn’t include more frequent corrections of less than 20%. Here’s a chart of the C fund since I began government service in 1995. As you can see, my 3rd major Bear Market is imminent… *For anyone fully invested in the TSP stock funds, and planning to Stay the Course, this chart should be terrifying…*
If your goal is to maximize your TSP account then avoiding those 50% losses is critical. If you have $80,000 in TSP and lose 50%, you have $40,000 left. Just to get back to $80,000 you need to make 100% on the remaining $40,000! If you have $80,000 in TSP and avoid the 50% loss, then when the market recovers you are growing from $80K rather than $40K. Your account grows exponentially!
Below is how this worked for the last 2 major Bear Markets.
(For those who think individual events drive the overall market, find 9/11 on the chart below. Does it stand out? Did the market crash because of 9/11? Does it change the symmetry of the chart??)
Pattern, Trend, and Technical Analysis works! It’s part art, part science where the more you practice, the better you get. If this post resonated with you, you’re starting to “get it”. If not, please find a system that does. HOPE is NOT a strategy!