This post was authored by Salvatore M. Capizzi, Dunham's Chief Sales & Marketing Officer. If you have questions concerning today's topic, please call us at (858) 964 - 0500. Hold us to higher standards.

With negative numbers lining indices, whispers of “bear market” are growing louder and louder. Headlines that read “Nasdaq falling” are likely making your clients fearful of the technology stocks in their portfolio. Remember, a market downturn is a signal for you to contact your clients as soon as possible with a level head and guiding hand.

To support you and your clients during this market downturn, we will release a piece of our Bull and Bear in a Cloud Marketing campaign on the blog every Tuesday. This campaign was created specifically to help in the event of a major decline in the equity markets. With compliance approval, these white papers and videos can be customized with your logo and disclosures so you can share them directly with clients who need them.

If you have not yet subscribed to our blog, click the button below to receive these valuable materials directly in your inbox. While a market downturn may incite fear in investors, you can instead see it as an opportunity to potentially raise AUM and get in front of prospects and clients.

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Perhaps the Best Sleep Comes from What is Keeping You Awake

The first piece of the Bull and Bear in a Cloud marketing campaign we will be sharing is Perhaps the Best Sleep Comes from what is Keeping You Awake. This white paper discusses how holding onto stocks during a market downturn could potentially lead to better results than if they had been sold out of fear. Read on to learn more!

“Should I Stay or Should I Go?”

This was the title of the 1982 hit by The Clash. The question here remains – when the stock market is declining, should investors stay, and hope the market soon recovers? Or is it better to go, and place their money in typically less volatile investments, like bonds, CDs, or money market instruments?

This challenging decision can literally keep investors up at night.

While all bear markets and economic conundrums are different and past performance is never an indication of future results, perhaps what could be learned by historical bear markets is that once stocks have suffered a major loss, the general risk may lie in selling your stock investments out of fear. You may find that staying may be a better strategy than going, particularly when recovering what you have already lost is a concern.

Let’s look at this concept a little closer. The chart below illustrates historic bear markets for the S&P 500 during the period from July 1956 to March 2020.

Column one reflects market peaks prior to the beginning of the bear market and column two shows the trough, which is when the market hit bottom.

Column three indicates the percentage the stock market was down, since the market peak, and equally as important, column four shows how long it would have taken you to recover from the bottom of the market, what you lost had you stayed in the market.

Column five indicates the hypothetical rate of return you would have needed to recover your losses in the same time as the S&P 500, had you decided to leave the stock market. As you examine the columns, you will generally find that the yield you would have needed in bonds, CDs, or money markets to break even in the same period as by staying in the stock market would have been either difficult to achieve or simply historically not available.

***Source: Investment Strategy Group, DataStream and Dunham & Associates Investment Counsel, Inc.
Data is from July 1956 through March 2020. Past performance is no guarantee of future results. Chart is provided for illustrative purposes only.

If you use the Financial Crisis of 2007/2008 as an example, you’ll see that the stock market lost 56.78% during this period. You will also see that it took 49 months to recover what you had lost in that bear market.***

However, had you sold your stocks at the bottom of that market, you would have needed to earn a 23% annual rate of return on your money to achieve the same return as the stock market. As many of you may recall, long-term bonds were generally below 4% and one year CDs and money market accounts were typically well under 1% between October 2007 and April 2013.***

It is important to note that the chart above does not include dividends that stocks pay and had this information been available for all periods, the time to recovery would be shorter and the return needed on bonds, CDs, or money market accounts to break even would have been higher.

If the market is declining, it could be difficult for your clients to remain calm and steady. However, with your support and guidance, they may find that their best sleep ultimately comes from what had kept them awake.

To receive this information as a free, customizable white paper, fill out this form today.

Tune in next week to watch a short video that further discusses how the best sleep comes from what is keeping you awake. If you’d like to view next week’s video ahead of time, click here. It will be another useful tool to add to your belt when discussing the current market downturn with clients.

*Months needed to recover are rounded up to the nearest whole number.

**For example, if the percentage correction was -25%, a total return of 33.33% would be required to recover. When annualized, if the months to recover was 6, then the annualized rate would be 77.78%, and if the months to recover was 24, then the annualized rate would be 15.47%.

*** Source: Investment Strategy Group, DataStream and Dunham & Associates Investment Counsel, Inc.


Disclosures:

Investments are subject to risks, including possible loss of principal. Investors should consider the investment objectives, risk factors and expenses of any investment carefully before investing. Diversification does not guarantee profit or ensure against loss.

The S&P 500, or the Standard & Poor’s 500, is a stock market index based on the market capitalizations of 500 large companies having common stock listed on the NYSE or NASDAQ. The S&P 500 Index components and their weightings are determined by S&P Dow Jones Indices. It differs from other U.S. Stock market indices, such as the Dow Jones Industrial Average or the Nasdaq Composite index, because of its diverse constituency and weighting methodology. It is one of the commonly followed equity indices, and many consider it an effective representations of the U.S. stock market, and a bellwether for the U.S. economy. You cannot invest directly in an index.

A bear market is defined as a market that is down 20 percent or more. A bull market is defined as a market that is up 20 percent or more.

All examples are hypothetical and are for illustrative purposes only. We encourage you to seek personalized advice from qualified professionals regarding all personal finance issues. The solution for an investor depends on their and their family’s unique circumstances and objectives.

Information contained in the materials that are included in the Bull & BearSM Marketing Campaign is believed to be from reliable sources, but no representations or guarantees are made as to the accuracy or completeness of information. This document is provided for informational purposes only and should not be construed as individual investment advice.

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Dunham & Associates Investment Counsel, Inc. is a Registered Investment Adviser and Broker/Dealer. Member FINRA / SIPC.
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