As volatility picks up and the stock market nears a downturn, it’s important to keep a proper perspective, just like you did to survive the difficult parenting years.

 

We are currently in the longest bull market since World War II and boy, does it feel good. But, like a snowman in April, you know it can’t last forever.

 

I believe that the stock market will take a turn for the worse sometime in the next couple of years. The real estate market is already showing signs of a downturn on the west coast, which is often a precursor to the financial markets. Even this month, stocks have been bouncing around like a kid on Christmas Eve. And a lot of people are getting really scared.

 

But I’m not worried and you don’t need to be either.

 

Stock Market Investing Is Like Parenting

You see, stock market investing is like parenting. It’s a long-term play. And if you don’t keep a long-term perspective, you will get frustrated and discouraged at times to the point of wanting to quit.

 

You cannot make your investing decisions based on what is happening in the moment, or even in a month or year. Do you remember when your son was 2 or your daughter was 13? For many of you, those were not pleasant times. They were challenging and brought you to your knees and your wits’ end.

 

But did you quit? Did you drop your kids off at the nearest fire station and decide that parenting just wasn’t for you? Though it was tempting, you didn’t. Why not?

 

The Long-Term Trend Is Positive

Parenting has a lot of ups and downs, but the overarching trend is up. Your potty-trained second-grader may have a season of bed wetting, but you know by the time she goes off to college she’ll have her bladder under control. Your ten-year-old may spurn personal hygiene and fight you tooth and nail to stay out of the shower, but you know that by the time he is at least 30 he will be able to take care of himself. Or, at least, bathe himself. Your 15-year-old… well, you know that eventually, the hormones balance out and the brain finishes developing the part that understands risk.

 

Just like Jesus, who for the joy set before him endured the cross, you endure parenting because you know that in the end, the reward is great. Even if your kids don’t turn out quite as you envisioned, you know that it was worth it.

 

Stock market investing works in much the same way. There are ups and downs, but the overarching trend is positive. Take a look at the graph below, copied from Google. It shows the S&P 500, which is representative of the stock market as a whole, over the past 40 years. Do you see the trend?

 

Bad Times Are Guaranteed, But Temporary

You probably also noticed in that graph that it isn’t a smooth line up. There are dips and dives on the pathway up. Just because you’ve poured your life into your kids doesn’t mean they won’t say they hate you as teenagers (or even as toddlers). But that’s temporary. So are market corrections and bear markets.

 

A market correction is defined as a loss of 10% or more in stock market value. A bear market is when stocks go down at least 20% within two months. That’s what everyone is afraid of. But, are they really that bad?

 

Since 1950, the US stock market has experienced 36 market corrections, of which 10 were bad enough to be classified as bear markets. The worst two are the last two we experienced, in 2000-2002 and 2007-2009, which most people remember. During those bear markets, the stock market lost 49% and 57% of its value respectively. However, when you look at all the bear markets since 1950, the average loss is 36% and they only lasted about 13 months before things turned around again. The average market correction (including bear markets) only lasted six and a half months.

 

So, yes, things are going to get rough.

 

At some point.

 

But it won’t last forever.

 

Then they’ll get better.

 

And then they’ll get rough again.

 

But, then they’ll recover to even better than before.

 

The Secret To Being A Successful Investor

The secret to being a successful investor is to tune out all of the noise, the alarmist news media, and your emotional reactions. (It’s a lot easier than with parenting!) Keep a long-term perspective and trust that what’s been happening for over a century in the markets will continue on. Like every stock market downturn or rough parenting stage, this too shall pass. And, just like those difficult parenting years, it’s all worth it in the end.