Over the past year I have spent time reviewing the history of the markets. While it does not predict the future, there are some interesting observations that you may be unaware of which could make a significant impact on how you view the markets and how you invest going forward.
Over the longer term (75 to 100 years) markets go up. However, most investors do not invest over that time-frame. Generally, an investor’s long-term time horizon is in the neighbourhood of 20 or so years and would be defined as an intermediate timeframe. The trends for “secular” markets generally last longer than market or business cycles. During these intermediate timeframes, markets are either in “secular bulls” (going up) or “secular bears” (going sideways or down). Below I have labelled the “secular bear” markets for the Dow Jones Industrial Average since 1898.
Source: Reuters Data, Metastock software, (see note below)
A worthwhile book on the subject is “Unexpected Returns: Understanding Secular Stock Market Cycles” by Ed Easterling. While this book was published in 2005, it provides a great overview of history. Note: The chart in this article was derived from Figure 5: Secular Bear and Bull Markets Profile of this book.
Since 2000, we have been in a “secular bear” market. How long will it last? No one knows for sure. What kind of investment strategy is necessary in this environment? In my opinion, whether you are a do-it-yourself investor, advisor, portfolio manager or pension fund, “tactical asset allocation” will be the key! Shifting assets when necessary away from the long term strategic asset allocation will be necessary to achieve and protect returns going forward.
Don Maycock, P. Eng, CFP, CIM is an independent financial advisor …advising you to and through retirement! Don is licensed for mutual funds which are provided through Armstrong & Quaile Associates Inc and insurance which is provided through Armstrong & Quaile Insurance Agency Inc. If you have a question or comment, email Don at dmaycock@a-q.com, call (613) 966 8289, or go to www.donmaycock.com for more information. Subscribe to “The MAYCOCK e-Newsletter” to receive valuable financial planning tips each month.
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