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Adam Shell explains a bull market on the current bull market that breaks the record for the longest record of all time.
UNITED STATES TODAY & # 39; HUI
The sky did not fall. Armageddon has not arrived. The company has not collapsed.
But 10 years ago, as the country was trying to emerge from the worst recession in decades, it was not easy. It is in this extremely negative context that investors, as a whole, have finally decided to start bidding stock prices instead of lowering them.
Thus was born on March 9, 2009, one of the strongest bull markets of all time.
Here are some lessons we could have learned as a result:
The market did not wait for a clear signal
People who left the stock market around March 2009 and have never returned have paid a huge price in terms of missed opportunities. The rebound that followed was one of the strongest ever, with the broad Wilshire 5000 index up more than 300%, including dividends.
The stock began to come together in a gloomy economic climate in March 2009. Nobody said the worst was over. The unemployment rate was 8.7% and would continue to rise for seven months. The country's GDP gains were anemic, real estate prices had not yet bottomed and many other signs of economic weakness persisted.
But focusing too much on negative headlines has likely convinced many investors to come out of what turned out to be a trough, said Michael Grosso of TCI Wealth Advisors in Scottsdale. Doing nothing in these moments, while perhaps feeling unsatisfactory – if not paralyzing – is often the best thing to do.
"It's all about eliminating noise and focusing on your goals," said Grosso.
The low and high of the markets become obvious only retrospectively.
Investors seeking security have paid a heavy price
The rebound in the stock market tells only part of the story of missed opportunities.
Sitting on the sideline would not have been as damaging if savers had obtained decent returns for parking their money in money market funds, bank deposit certificates and other deposits. ultra-safe instruments. But they did not do it.
"Every time (since 2009), when the market fell sharply, people thought it was again in the year 2008. They were fighting the last battle. "
David Daughtrey, Financial Advisor at Copperwynd Financial in Scottsdale
Yields fell sharply and remained depressed for a long time. In fact, returns to savers have not really rebounded, despite the Federal Reserve's nine rate hikes over the past two years.
If you had parked $ 100,000 on six-month CDs in 2006, you would have earned more than $ 5,200 in interest that year, according to JP Morgan Asset Management. This same scenario in 2018 would have generated less than $ 600 of interest.
Banks and other lenders have been able to attract enough money to be able to obtain attractive or even decent returns. So many people have been traumatized by the fall of 2007-2008, when the stock market lost more than 50%, that they were willing to accept poor returns on monetary investments.
"Every time (since then), when the market fell sharply, people thought it was 2008," said David Daughtrey, financial advisor at Copperwynd Financial in Scottsdale. "They were fighting the last battle."
An economic theory was thrown with the washing
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One of the reasons the last 10 years have been so confusing, if not frustrating, is that some of the economic principles we learned in textbooks have simply failed.
For example, Daughtrey cites the Federal Reserve's efforts to lower interest rates close to zero, and then embark on an unprecedented bootstrap effort known as quantitative easing. These and other measures should have triggered inflation and raised interest rates, but at best the impact was modest.
"These policies have not had much impact on inflation," said Daughtrey. "Economic theory says that they should have."
MORE: Bull market, bear market: what is it and why do you care?
As another example, the federal government's credit rating was reduced for the first time in its history, but investors simply shrugged their shoulders. Treasury bonds and other public debts have remained as popular as ever and their yields have remained low. Meanwhile, the dollar appreciated against most other major currencies, also challenging textbook explanations.
The gaping federal debt, which has reached unprecedented levels over the last twelve years, has also not contributed much to the rise in inflation or interest rates.
Ultimately, the impact of these trends could be felt more decisively. But for now, inflation and interest rates still low at this stage of the economic cycle, given all stimulus measures in place, have been a headache.
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Americans have not shared the rebound equitably
The economy is clearly in a better place than it was 10 years ago, but that does not mean that prosperity is widely shared.
Despite the lowest unemployment rates in decades – and the sharp drop in minimum wages in Arizona and elsewhere – many Americans still struggle to make ends meet, they do not have access to credit or have a job whose income is irregular.
The homeownership rate has barely moved from its low recession levels, it is estimated that 40% of the families living on paychecks, and there are other signs of financial stress that you would not expect 10 years of recovery.
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"Many of the positive headlines in our economy are focused on low unemployment and rising incomes," the progressive research group Prosperity Now said in a January report on financial vulnerability. "Having a job does not guarantee financial stability, especially if it does not pay enough to cover your living expenses or offers a constant salary and good benefits."
Affluent Americans thrived, in part because they had investments since the beginning and so they were in a position to take advantage of the rebounds of the real estate and stock market. Other Americans were left behind, in part because they did not have any assets in appreciation.
Investors learned lessons and missed others
While many Americans still have no stock market investments – and have paid the price – the past decade has seen a steady increase in investor-friendly products and services that have attracted many people.
Harry Papp of L. Roy Papp & Associates highlights the advent of low-cost index funds and exchange-traded funds, which have grown in popularity over the past 10 years or so. These portfolios are generally very diversified and have lower investment costs.
"All the others, you will get better results," he said.
However, Jonathan Clements, author of the HumbleDollar.com financial blog, said he was concerned that some people may have learned bad things in the past 10 years. For example, it indicates that those who think that US stocks will always be ahead of the pack simply because they have done in recent years.
"Over the last ten years, many people have concluded that US stocks still outperform foreign equities, that bonds are losers and that it's enough to have shares of large companies, especially big technology companies, "he said.
However, in the last decade, between 1999 and 2009, the opposite was largely true.
The lesson is that markets and investments evolve in cycles and no investment or asset class is performing consistently. That's why it's important to build a broadly diversified global portfolio of stocks, bonds, cash and sub-categories, and periodically rebalance the portfolio by collecting chips from your winners. and reinvesting in latecomers.
Rebalancing, said Papp, is a "very powerful" concept.
Contact Wiles at [email protected] or 602-444-8616.
Read or share this story: https://www.azcentral.com/story/money/business/economy/2019/03/03/lessons-stock-market-crash-recovery-creat-great-recession/2985140002/
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