Winter can often feel like a cold, dark, lonely, and (especially in the midwest!) never-ending season. And while each inevitable winter can test our patience and our fortitude, there are also tried-and-true ways to prepare, and make the winter a bit more bearable. So, we asked ourselves, what if we took this preparedness mindset and applied it to our long-term financial goals? Read on to learn more about financial "Winter", and how can we best "bundle up" for its arrival.
Winter is Coming
In the HBO series Game of Thrones, the protagonists of the show, the Stark family, are a northern family that live in a fictional world where the winter season comes along sporadically every few years instead of a predictable yearly occurrence. As these winters are often brutal and unknown in their timing, the Starks' unofficial family motto is “Winter is Coming” and they spend a great deal of time preparing for these unpredictable winters.
The obvious connection to investing and your financial plan is we too, have no idea when a bear market will occur in the stock market (a bear market is defined as a 20% or more drop). History tells us that since 1926, there have been 11 instances in which the S&P 500 ended a month in a bear market, an average of about once every 8.5 years. The most recent, of course, being the Great Recession from Oct 2007-Feb 2009, when the S&P 500 dropped by more than 50%.
Now that we’ve established that bear markets are unpredictable in timing, length, and severity of returns, what then are we to do to prepare for our own investing "Winter"? A couple suggestions:
At Frontier Bank Wealth Management & Trust, we can assist you in building your financial plan and help you stick to it when Winter inevitably strikes.