September 2018 marked the 10th anniversary of the Lehman Brothers collapse, one of the defining moments of the financial crisis or the Great Recession. In addition to the Lehman bankruptcy, Fannie Mae and Freddie Mac were placed under federal conservatorship, and several other government-orchestrated bank tie-ups and bailouts occurred in a chaotic September 2008. For the full year 2008, the S&P 500 declined by 37%. It was an historic, turbulent and nerve-rattling period for investors.
Paramount to long-term investment success is the ability to wed a prudent, well-designed investment plan with a disciplined and proven process to carrying out those investments.
What a difference a decade can make. We are in the 10th year of one of the greatest bull markets in U.S. history. During September 2018, the S&P 500 set a new all-time high. According to Wilshire Associates, U.S. equity values have increased 337% (as of this writing) since the stock market’s low in March 2009. Today we are experiencing the opposite of where we stood 10 years ago. The focus now should be on where we go from here and how best to guard against emotional triggers, overconfidence and complacency that can lead to both poor decisions and results.
Market cycles, or the ups and downs of the stock market, can be hard to navigate and even harder to predict. Even in the midst of a great bull market, successfully managing through the constantly shifting financial markets is a challenge for investors due to the inability to accurately time market changes as well as our emotions that often overtake reason. This challenge is greater in periods of turbulence and market declines. We know from history that market cycles are an inevitability, but timing the beginning and end of these cycles has proven to be an unsuccessful endeavor for individuals and professionals alike. Investors must guard against biases and emotions that can cause us to make impulsive investment decisions that may derail our long-term goals.