Making large scale asset allocation decisions (like moving money to cash) during bear markets can be very difficult and painful. The difficult part is dealing with our own emotions of actually having to make the decision and the painful part is twofold: (1) raising cash when we have already lost some money, and, (2) the risk of going to cash to then watch the market go up.

It is times like this that we should use data, and not emotions, to help make our decisions. The table below shows the value of $1,000,000 invested into the S&P 500 on January 1, 1973. As you can see from the table, the market dropped for 22 months, and the value of $1,000,000 investment fell to $629,150. Had a person cashed out and bought a 5% bond, their money would have grown to $1,024,820 10 years later. However, had they just kept their money invested for the next 10 years in the S&P 500, they would have finished at $2.472,535.

A few things that we need to remember during bear markets.

• Markets tend to go up long before the recession is over.
• Bull markets are built on bear markets as per chart below.
• Unless “It’s different this time”, the market risks are asymmetric in favor of going up. Just look at any long-term S&P 500 chart.
• As of September 30, 2022, the S&P 500 and the NASDAQ 100 were down 24.99% and 32.8% respectively. As you can see from the chart below if every time you bought the market when it was down more than 20% you were handsomely rewarded afterwards.

I have also included a piece from our CIBC Economics team entitled "Who’s on Worst?".

As always, if you have any questions please feel free to give us a call.

Have a great long weekend.

Milan