Our experience has shown that some financial advisors build their practice in a bear market. Part of the reason they thrive is that to some of their competitors, the telephone becomes a three hundred pound weight when the bear market hits. Those competitors may have difficulty explaining to their clients why their account values have significantly decreased.
The clients of these competitors are investors who consciously sought financial advice, but when they needed it most, their financial advisor was not available.
We call these clients "The Great Detached Investors."
To help you establish yourself as a valuable resource for your clients during the next market downturn, Dunham has created the Bull and Bear in a Cloud marketing campaign. It consists of 14 white papers and three videos that, with your compliance approval, you can privately label with your name and logo.
You can share these materials with clients now to serve as a valuable resource for them before the next bear market. The program may make you more referable to your client's friends and family members, who may have become one of the “Great Detached Investors.”
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The Dunham Market Cycle Chart
One reason you may want to maintain hope during a bear market lies in the understanding that in our view, the stock market generally rises and falls in cycles, moves in large chunks, and many times in what we consider short periods.
Said differently, while past performance is not indicative of future results, from a historical basis, once the market hits a low, it typically rises quickly and in rather large percentages. This could mean that even during a market downturn, you have hope for some potentially strong days in the market ahead of you.
To illustrate this point, the Dunham Market Cycle Chart explores the last 10 bear markets. It examines the returns of the S&P 500, including the cumulative return, which is the aggregate amount that the index has gained or lost over time, from a previous high point to the next high point (peak to peak) and the cumulative return from the lowest point to break-even.
It is interesting to note the large amount the market historically has moved in a relatively short time period. For example, the chart shows that the average cumulative return from peak to peak is 162.68% over 7.6 years. However, it is important to remember that past performance is not indicative of future results.
Let’s look specifically at the year 2020. We see that the market was down -33.79% from its previous high, but its cumulative return from the lowest point to break-even was 51.04% over 4.8 months. Additionally, its cumulative return from the previous high point to the next high point was 45.02% -- over a span of under 2 years.
Some investors may find it difficult to be optimistic as the stock market declines. We certainly understand this. The key is not to panic and to understand that there is possibly some hope on the horizon.
As the Market Cycle Chart Shows, the break-even point is reached over an average of 1.6 years, meaning it may be worth it to remain hopeful and hold on to those investments even during steep declines.
The Market Cycle Chart can be a valuable tool when reassuring your clients they need not panic during a market decline.
Source: Morningstar Direct.
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.
A bull market indicates a sustained increase in price, whereas a bear market denotes sustained periods of downward trending stocks - typically 20% or more. The term "bull vs bear" denotes the ensuing trends in stock markets - whether they are appreciating or depreciating in value - and what is the investors' outlook about the market in general. Bull markets generally coincide with periods of robust economic growth; investor confidence is on the rise, employment levels are generally high, and the economic production is strong. During the bearish phase, companies begin laying off workers, leading to a rise in unemployment and, consequently, an economic downturn.
No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment.
Information contained in the materials 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.
This graph is a representation of the S&P 500 including dividends. The S&P 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 most commonly followed equity indices, and many consider it one of the best representations of the U.S. stock market, and a bellwether for the U.S. economy.
You cannot invest directly in an index. 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. No two markets are the same and past performance is never an indication of future results.