Written by Tyson Ray, FORM Wealth Advisors | CFP®, CExP®, CIMA®
When I was a kid, I liked to play the board game Chutes and Ladders. Maybe you did, too. The object of the game is to be the first player to go from square number 1 to square number 100. Players roll a die and move their game pieces the number of spaces shown on the die. The key to the game is that ladders lead upward only, and chutes lead downward only. All ladders and chutes begin and end in “picture” squares that are related to each other.
If your playing piece stops on a picture square at the bottom of a ladder — for example, on square 9, you must move up to picture square 31 at the top of that ladder. If, on the other hand, your playing piece lands on a picture square at the top of a chute — on square 49, for example — you must move down to picture square 11 at the bottom of that chute. The first player to reach the Blue Ribbon Corner, number 100, wins the game.
You will move forward on the game board slowly, sometimes having to backtrack — just like in life and in investing. In all cases, you will sometimes move forward with little effort. Yet at other times, because of chance, circumstances and natural fluctuations, you find yourself losing momentum in your forward progress and actually falling backward for a while.
We will always have setbacks; the key is to stay in the game
That is incredibly frustrating — moving backward and landing at the bottom of a chute. In the markets, a downturn can happen so suddenly that it takes our breath away, and the shock of the situation causes us to forget about the upward progress we’ve been making over time. Yet, just like in the board game, most of those downturns are temporary declines. If you play Chutes and Ladders long enough, everybody gets to the last square because that’s how the game is designed.
This is true with investing, too.
Investing is a long-term game, and if you keep at it, you will eventually experience success. Long-term investing can be quite rewarding, but you have to be able to ignore the inevitable setbacks and keep your eye on your end goal.
The markets always rebound, even after the worst declines
One of the most significant “falls down the chute” that the markets have experienced in recent times happened when the COVID-19 pandemic first surfaced. The market experienced one of the fastest declines in history.
The 2020 stock market crash caused by the coronavirus was a major and sudden global event that began on February 20th, 2020, and ended on April 7th, 2020. As the pandemic began to spread in March and government officials around the world shut down economic activity, panic triggered by the economic consequences and uncertainty led to a stock market crash that included the three worst point drops in U.S. history:
- On Monday, March 9th, the Dow fell 2,014 points, a 7.79 percent drop.
- On March 12th, 2020, the Dow then set another record by falling 2,352 points to close at 21,200. That was a 9.99 percent drop, the sixth-worst percentage drop in history.
- Finally, on March 16th, the Dow plummeted nearly 3,000 points to close at 20,188, losing 12.9 percent. The drop in stock prices was so massive that the New York Stock Exchange suspended trading several times.
Thank goodness that’s over, right?
When this happened, the financial crisis of 2008 was still pretty fresh in our minds, and the sudden decline scared a lot of people. On September 29th, 2008, the stock market fell 777.68 points in intraday trading. At that time, it was the biggest point drop in history. The immediate cause of the market crash was Congress’ initial refusal to pass the bank bailout bill that would stabilize the American financial system after a series of historic shocks. The bill finally passed on October 3rd, 2008.
In the fall of 2008, the economic contraction worsened, ultimately becoming deep enough and protracted enough to acquire the label “the Great Recession.” What many people don’t realize is that the market continued its decline, and the U.S. economy bottomed out in the middle of 2009. The recession ended in June 2009, but economic weakness persisted.
There were similary back-to-back “slides down the chute” in 1990, during the Gulf War; and during the “dotcom bubble” in 2000.
When these downturns occur, and either we see our own portfolios decrease in value or we see others experiencing losses, it can make us want to get out of the market and never get back in. But what goes up must come down, and vice versa — every time in history the market has declined, it has rebounded later. This is how it will always be. Knowing that can give you more confidence in your eventual outcome and motivate you to stay in the game.
With the coronavirus crash of 2020, for example, the market began to recover as the Fed and U.S. Treasury Department stepped in to support the economy and boost benefits to those most impacted by the pandemic. By August 17th, the S&P 500 was up 27 percent from its low point, setting new records again. By November 2020, U.S. markets finally returned to January levels, and the Dow passed 30,000 for the first time in history on November 24th.
The market has always recovered every time it has declined.
There are more chutes than ladders in investing
If you go back through history, you will see that there are actually more ladders than there are chutes every year.
The perspective I want to offer you is that if you can look past the day-to-day, the month-to-month and even the quarter-to-quarter fluctuations in the market, you will see that the market continues to advance. The people who ride out the chutes have been able to climb the ladders and accumulate wealth they can pass on for generations to come.
In some cases, that wealth is life-changing and sustains the investors through decades of retirement.
Just remember — if you play the game long enough, you will eventually finish well.
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We want our clients to be able to finish the race they’ve been running for their entire lives. We want to learn what your long-term goals are for the future, and when we work together, we will encourage you every step of the way, reminding you to stay the course, continue your upward trajectory and ultimately live the life you’ve always imagined.
Any opinions are those of the author and not necessarily those of Raymond James. This material is being provided for informational purposes only and is not a complete description, nor is it a recommendation. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.
