So, in your lifetime you are likely to experience 3 or maybe 4 stock market declines of say 35-60%. If you are 60 years old, you will have experienced 4 major declines including the current one which is 36%, so far. Apart from 1966-1982 all have been relatively sharp, but the reality is we don’t know how long they will go on for.

I am trying to paint a picture of reality. Over the long-term, say 100 years, the share market has returned better than property and the returns have been good. That’s if we live 100 years, unlikely, and then how long are you actually invested in the stock market. 10, 15 or 20 years? Let’s say it returned 10% GAGR and that’s great we say, but then again this may depend on the last 2, 5 or 10 years which is what we normally measure our expectations against. Like now Property has boomed in Melbourne and Sydney. Is that a good benchmark? If only I had five houses! The periods we live through and the periods we are invested in stocks or property affect our expectations. Don’t you love the advisor who tells us shares have returned better than 10% CAGR since 1900. And then we live through a bear market like 1966 to 1982 or 2020 to ??. We don’t know what’s ahead nor do we live, nor are we invested for 100 years. That’s reality. And these days our time frame is probably shorter than it was say 50 years ago. But having said all that, we can, and should be prepared no matter the shape of any correction or bear market.

So, we have to understand that there must be an engagement plan to counter these forces if we are to invest in the stock market. One option is to sit through it and ride the downswing, without knowing how far it will fall like 2007/08 or the length like 1966-1982, or how long it will take to recover. For Australian investors the market has only recently recovered the highs hit on 2007 basis the ASX/200. The idea for those types of ‘long term’ investors was to rebuild some portfolio value during this slow climb back if you have the money and the gumption. It’s a difficult choice but again this is the reality. Some retires couldn’t afford to wait and they paid a price.

The ASX Accumulation Index is a far better measure for those that ‘buy and hold’ as it includes dividends which these investors will receive, and that took about five years to recover its highs. A better result. See chart below. The great thing about the Aussie stock market is that yields can be quite strong especially when interest rates aren’t attractive and that can cushion the pain of shrinking growth. So that can be a way but it’s hard and ‘hopeful’ work and again we are left still with the question of how deep and how long and do we ‘carry’ through. We never know what’s ahead. We can take that element of doubt out of the equation. One of the five fundamental truths of trading is you don’t need to know what’s going to happen next to make money. Too true, we don’t, and we can’t – but we can still make money. The recent fall has brought us quickly back to reality again after an 11-year upswing. Yes, it’s an ongoing challenge.