Notre-Dame and the Stock Market

What a slightly longer perspective tells us about how to deal with the recent market downturn.

(Note: we intended to make this post last week but the internet in our Paris hotel was not cooperating.)

On April 15, 2019, we were touring the Chicago Theater when news broke that Notre-Dame Cathedral was on fire. The images from Paris were devastating.

After assessing the damage, French officials promised to restore the cathedral within 5 years.

A lot has happened since the fire.

A year later, we were in COVID lockdown.

The stock market lost nearly a third of its value from late-February to late-March 2020. Some investors concluded that stocks were “too risky” and moved into what they considered to be “safe assets.”

As we began to emerge from lockdown, supply chain disruptions led to spikes in inflation on a global basis, with inflation in the US topping 9%.

From March 2020 to March 2021, the stock market increased 56%, likely stressing those investors who had moved to “safe” assets a year earlier.

Meanwhile, the Fed began raising interest rates to fight inflation and, somewhat miraculously, managed to bring inflation down below 3% by the beginning of 2023, while avoiding a recession.

We bring this up for two reasons.

First, we visited Notre-Dame last week, and to say the restoration was impressive is an understatement.

The second reason is as a reminder that focusing exclusively on short-term market movements—especially during a panic-fueled selloff—is neither smart nor healthy with regard to your long-term financial well-being.

Since being in Paris and thinking about the fire, we were curious to see how the stock market has done since the fire—a period of almost 6 years.

It turns out that during that period, including the COVID decline and current selloff, stocks (S&P 500) have returned 13.6% on an annualized basis.

Investors who avoided panicking over this time period were rewarded for taking a longer-term view.

We’re not suggesting that stocks have no risk of loss over a 6-year period. Historically, stocks have lost money over 6-year periods about 8% of the time.

We’re simply pointing out that the chance of losing money with stocks decreases over progressively longer time periods, reaching 0% at just over 15 years.

Summary

While watching the stock market go down can be stressful, it’s worth remembering that, historically, the stock market has recovered from selloffs and, eventually, recorded new record highs 100% of the time.

As we’ve noted before, you should not include Stocks in your Short-term Portfolio—which means you don’t need to worry about short-term declines.

And if you’re a long-term investor, it’s simply a matter of giving it enough time until the stock market inevitably recovers.

If Notre-Dame can recover in six years, we strongly suspect that, when we look back six years from now, we’ll be looking at a period that included a recovery from whatever is currently happening in the stock market.

The riskiest move is to get out of stocks and then miss the recovery, which can be both costly and stressful.

Best regards,

Stuart & Sharon