Last week I mentioned that all markets are currently having a tough time.
While the US market remains the strongest, it’s still down 10% from all-time highs of late July.
Chart: S&P 500 down 10% from peak

If you are a first-time investor or recently entered the market, this may seem reason to be concerned. Are these declines unusual?
The answer: Not at all.
A 10% decline within a calendar year tends to happen every 1.6 years as per the chart below.

- a 15% drawdown every 2.5 years
- a 20% drawdown every 4 years
- a 30% drawdown every 9 years
You get the point.
These types of market movements are very normal. In fact, periods of high uncertainty like the one we are going through more often than not make for good long-term buying opportunities (just make sure you’re buying companies that are equipped to ride through these shorter term troubles).
I had a recent conversation with a client aged 60. We are building an income portfolio. The market crash that happened over covid came up, and when I mentioned that he should expect something like this every 10 years, I saw it was quite a shock.
I went on to explain that his actuarial age (life expectancy) was close to 80, meaning another 20 years. That’s a long time. Well, based on the above chart, the market should crash 30% or more on two occasions before his 80th birthday.
But that’s no reason to disinvest. The market returns we see include these pullbacks, and they still beat cash and bonds hands down. Equity is definitely the place to be long term.
Rather than worrying about a market crash, you should focus on your asset and geographical allocation. Do you have the right mix of cash, bonds, property, and equity? Does your local and offshore mix speak to your financial goals? Is your portfolio optimally structured for tax? These are the questions that matter.
A well-designed portfolio can withstand these shocks (well, anything the market has thrown at us for the last 100 + years). Each crisis is different, but the cycles of boom and bust remain the same.
I turned 39 the other day. That gives me 51 years until I hit 90. That means I should experience crash of 30% or more between 5 and 6 times.
How old are you? Let’s say we expect you will live until 90. How many years is that? Based on that, go back to the table, and see how many times you are going to experience a 30% drop or more.
I realise the above information may seem scary. But let me leave you with a long term chart of the S&P through all this volatility. You’ll notice that the long term trend is up and to the right.
