7 Facts That Will Free You From a Fear of Stock Market Crashes
The current bull market in stocks is closing in on an astounding 10 years in length, making it the longest bull market run in all of modern history.
Largest Bull Markets
|#1||09’-18’ (Current)||115 months*|
*As of September 2018
Understandably, this makes many people very nervous.
Everyone remembers the mayhem of 2008 – and with stock prices at all-time highs, the fear of a market meltdown is a valid concern for many investors.
How to Become Unshakeable
Today’s infographic is from Tony Robbins, leveraging data and talking points from his #1 Best Selling book Unshakeable: Your Financial Freedom Playbook, which is now available on paperback.
It leans on insights from the world’s top investors – like Ray Dalio and John Bogle – to present seven indisputable facts about market crashes, using clear patterns established over decades of data.
By understanding these seven facts, you’ll be able to prepare for the recurring seasons of the financial market, including winter, and it will help give you an enormous edge over even many sophisticated and experienced investors.
Seven Indisputable Facts
Here are the seven facts that will free you from a fear of stock market crashes:
Fact #1: On average, corrections happen once per year
For more than a century, the market has seen close to one correction (a decline of 10% or more) per year. In other words, corrections are a regular part of financial seasons – and you can expect to see as many corrections as birthdays throughout your life.
The average correction looks something like this:
- 54 days long
- 13.5% market decline
- Occurs once per year
The uncertainty of a correction can prompt people to make big mistakes – but in reality, most corrections are over before you know it. If you hold on tight, it’s likely the storm will pass.
Fact #2: Fewer than 20% of all corrections turn into a bear market
When the stock market starts tumbling, it can be tempting to abandon ship by selling assets and moving into cash. However, doing so could be a big mistake.
You would likely be selling all of your assets at a low, right before the market rebounds!
Why? Fewer than 20% of corrections turn into bear markets. Put another way, 80% of corrections are just short breaks in otherwise intact bull markets – meaning that selling early would make you miss the rest of the upward trend.
Fact #3: Nobody can predict consistently whether the market will rise or fall
The media perpetuates a myth that, if you’re smart enough, you can predict the market’s moves and avoid its downdrafts.
But the reality is: no one can time the market.
During the current nine year bull market, there have been dozens of calls for stock market crashes from even very seasoned investors. None of these calls have come true, and if you’d have listened to these experts, you would have missed the upside.
The only value of stock forecasters is to make fortune-tellers look good.
– Warren Buffett
Fact #4: The market has always risen, despite short-term setbacks
Market drops are a very regular occurrence. For example, the S&P 500 – the main index that tracks the U.S. stock market – has fallen on average 14.2% at least one point each year between 1980-2015.
Like winter, these drops are a part of the market’s seasons. Over this same period of time, despite these temporary drops, the market ended up achieving a positive return 27 of 36 years. That’s 75% of the time!
Fact #5: Historically, bear markets have happened every three to five years
In the 115 year span between 1900-2015, there have been 34 bear markets.
But bear markets don’t last. Over that timeframe, they’ve varied in length from 45 days to 694 days, but on average they lasted about a year.
Fact #6: Bear markets become bull markets
Do you remember how fragile the world seemed in 2008 when banks were collapsing and the stock market was in free fall?
When you pictured the future, did it seem dark and dangerous? Or did it seem like the good times were just around the corner and the party was about to begin?
The fact is, once a bear market ends, the following 12 months can see crucial market gains.
The best opportunities come in times of maximum pessimism.
– John Templeton
Fact #7: The greatest danger is being out of the market
From 1996 through 2015, the S&P 500 returned an average of 8.2% a year.
But if you missed out on the top 10 trading days during that period, your returns dwindled to just 4.5% a year.
It gets worse! If you missed out on the top 20 trading days, your returns were just 2.1%.
And if you missed out on the top 30 trading days? Your returns vanished into thin air, falling all the way to zero!
You can’t win by sitting on the bench. You have to be in the game. To put it another way, fear isn’t rewarded. Courage is.
– Tony Robbins
How Decentralized Finance Could Make Investing More Accessible
Under the current global financial system, billions of people do not have access to quality assets. Here’s how decentralized finance is changing that.
Infographic: How Decentralized Finance Could Make Investing More Accessible
Did you know that a majority of the global population doesn’t have access to quality financial assets?
In advanced economies, we are lucky to have simple options to grow and protect our wealth. Banks are all over the place, markets are robust, and we can invest our money into assets like stocks or bonds at the drop of a hat.
In the United States, roughly 52% of people are invested in the stock market – but in a place like India, for example, this portion drops to a paltry 2%. How can we make it possible for people on the “outside” of the financial system to gain access?
Breaking Down Barriers
Today’s infographic comes to us from Abra, and it shows how decentralized finance could make investing a more universal phenomenon, especially for those that don’t have access to the modern financial system.
It lays out four key obstacles that prevent people in developing markets from investing in quality financial assets in the first place:
- The Geographic Lottery
Where you live plays a massive role in determining your ability to build wealth. In advanced Western economies, the average person is much more likely to be invested in financial markets that can help compound wealth.
- Financial Literacy and Complexity
Roughly 3.5 billion adults globally lack an understanding of basic financial concepts, which creates an impenetrable barrier to investing.
- Local Market Turmoil
Even if a person is mentally prepared to invest, local market turmoil (hyperinflation, political crises, closed borders, etc.) can make it difficult to get access to stable assets.
- The Cost of Investing in Foreign Markets
Foreign assets can be pricey. One share of Amazon is $1,800, which is realistically more money than many people around the world can afford.
In other words, there are billions of people globally that can’t take advantage of some of the most effective wealth-building tactics.
This is just one flaw in the current financial system, a paradigm that has created massive amounts of wealth but only for a specific and well-connected group of people.
Enter Decentralized Finance
Could decentralized finance be the alternative to open up access to financial markets?
By combining apps with blockchain technology – specifically through public blockchains such as Bitcoin or Ethereum – decentralized finance makes it possible to get around some of the barriers that are created by more traditional systems.
Here are some of the innovations that are making this possible:
Smart contracts could automate transactions and remove intermediaries, making investing cheaper, faster, and more accessible.
Fractional investing could allow partial or shared ownership of financial assets by using tokenization. This would make expensive stocks like Amazon ($1,800 per share) available to a much wider segment of the population.
Location independent investing is possible through smartphones. This would make it possible for people in remote parts of the developing world to invest, even without access to nearby financial institutions or local markets.
Like the internet with knowledge, decentralized finance could reshape the world by making financial access universal. Who’s ready?
How Macro Trends Shape the Market’s Future
From climate change to aging populations, macro trends are changing the future. Here’s how to use them to your advantage.
It’s hard to say for certain what the future holds.
Without the luxury of a crystal ball, investors must find opportunities by analyzing the market. There’s just one problem: the 24/7 news cycle is enough to make anyone’s head spin.
Where should an investor focus their attention, when almost every new venture is forecast to be the next big thing?
The Powerful Influence of Macro Trends
Today’s infographic comes to us from U.S. Global Investors, and it highlights how analyzing macro trends can serve as a key investment tool.
Two Main Investment Approaches
When selecting stocks, many investors fall into one of two camps:
1. Top-down Investing
- Analyze macroeconomic trends.
- Identify specific sectors and regions.
- Choose individual stocks based on company fundamentals.
Considering the aging Chinese population, a top-down investor may choose to invest in Chinese healthcare stocks.
2. Bottom-up Investing
- Complete in-depth company analyses.
- Select a stock that is outperforming others in its sector.
A bottom-up investor could analyze Home Depot and choose to invest if it had strong performance relative to Lowe’s.
These approaches can be used separately, or even combined together. Zooming out allows investors to identify the big picture opportunities. Then, a bottom-up approach can find the companies that best capitalize on each trend.
What is a Macro Trend?
A macro trend is a long-term directional shift that affects a large population, often on a global scale. For example, climate change is affecting industries in both positive and negative ways. While “green” industries have seen increased support, ski resorts are projected to have 50% shorter winter seasons by 2050.
There are a couple of main ways to identify macro trends:
- Government policy
Government policies are a precursor to change, shaping macro trends and creating opportunities. For instance, Obama’s Recovery Act fueled growth in renewable energy with a $90 billion investment.
- Economic cycles
The cyclical nature of the economy means that investors can also use history to identify macro trends. Consider fiscal and monetary policy, which is implemented in response to economic data:
- Expanding economy
The central bank raises rates and the government reduces fiscal stimulus. As a result, inflation is moderated.
- Contracting economy
The central bank lowers rates and the government increases fiscal stimulus. As a result, growth is stimulated.
- Expanding economy
Discovering Long-Term Value
Macro trends are a key tool for discovering long-term market opportunities. They are beneficial because they are:
- Unbiased and data-driven
- Not swayed by daily headlines
- Tend to avoid riskier, niche industries
- Can be diversified by sectors and regions
There are currently many macro trends at play. For example, Trump’s sweeping tax reform and deregulation boosted the U.S. economy, lifting GDP growth to a 13-year high of over 3% in 2018 Q3.
However, not everyone’s a winner. America’s reduced taxes have made Canada less competitive. It’s estimated that 4.9% of Canada’s GDP is at risk due to ripple effects from U.S. tax reform. What’s more, regulators worry that the bank deregulations might put the financial system at risk.
The proposals under consideration… weaken the buffers that are core to the resilience of our system.
— Lael Brainard, Member of the Board of Governors of the Federal Reserve
So, how do investors distill this wealth of information into a future of wealth?
Spotting the Next Wave
In today’s hyper-connected world, it’s easy to get lost in data overload. Thinking big picture allows investors to focus on trends that:
- Have a long-term outlook
- Affect a large population
- Create a clearer vision of the future
Then, an investor can target the most promising regions and sectors. When used effectively, this approach enables investors to ride the next big wave that will shape markets.
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