Are You Asking the

Right Question?

By Jeff Roberts, MavenCross Wealth Advisors

Each quarter for the last 4 years, I have put a lot of thought into the financial message I send out to our lake community. Sometimes, the topics come easy due to a timely tax strategy or an economic climate that is necessary to address. Other times, I have just waxed poetic about a particular subject I think people should understand. The article you are reading right now stems from conversations I am having with clients during our regularly scheduled financial planning review meetings. I have noticed that clients have come to expect discussions on the economic and investment climates and are now asking about those topics before we have even finished greeting and catching up.

My sense is that most investors are feeling a lot of uncertainty right now. 

And by “most investors,” I mean the vast majority of people reading this article who are not engaged in investments as a professional career. As I write this article in mid-March, the people I come into contact with are asking,

“What do you think of this crazy stock market?”

“What do you think will happen to the market now that the Democrats are in charge?”

“How is the coronavirus going to affect the market this year?”

“Do you think the market is in for a big drop?”

“Is our national debt about to cause everything to crash?”

Those are the questions I get asked almost verbatim. If you are wondering about the answers, recognize the questions may be rooted in unnecessary fear. You may want to speak with someone who can help you to understand the answers clearly. If you enter 2021 with fear, you may overreact when markets behave normally.

One of the best parts of being a nerdy financial guy is the months of December and January because many investment companies release their market and economic predictions for the coming year. It is fun to read through the forecasts of all the companies we respect. And it is especially nice when they are mostly saying and projecting similar things, which was the case for 2021. Pretty much every white paper or analysis I read has built a case for the U.S. economy to do quite well this year. However, most experts agree that two things need to happen for that to be the case:

  • The vaccination(s) proves to be very successful in the fight against the coronavirus, and
  • We are able to turn the economy back on ‘full’ again, or close to it.

Under those two conditions, it could be a really great year for the U.S. economy. Furthermore, and under those conditions, the consensus is that U.S. stocks will be higher on December 31, 2021 than they were on January 1, 2021. While speaking at the 2021 Kingdom Advisor Conference in February, Bob Doll, CFA, Senior Portfolio Manager and Chief Equity Strategist with Nuveen, said it best,

“We think it’s going to be a great year for the economy and earnings, but a good year for the stock market.”

Even still, client meeting after client meeting, day in and day out, the people I speak with seem to have an undercurrent of fear… hence, the questions I reference in paragraph two. If you demanded to know, “No more optimism, Jeff! Tell me what scares you the most right now.” I would say, “That’s easy… Investor’s short-term memory!” Investors tend to forget the important rules of the market, or worse, they have never seen them. A quick summary of some rules…

  • Stocks are long-term investments.
  • Buy low and sell high.
  • Never get emotional about stocks.
  • Don’t put all of your eggs into one basket.
  • No one can consistently time the market.
  • Expect stocks to fall -15% (or more) in any given year.
  • Review your strategic and tactical allocations regularly.

{Insert sound of a record player needle being dragged across the vinyl.}  Wait, what?! #6?! “Expect stocks to fall -15% in any given year?!” Yes, you read that correctly, and THAT is what scares me most. Many investors don’t remember what normal levels of volatility look like, and I don’t want people to overreact or jump to “end of the world” conclusions (fueled by preconceived fears) when normalcy strikes again.

Our friends at J.P. Morgan assemble a great chart that looks at the Standard & Poor’s 500 Index (the 500 largest stocks in the U.S. market) over the last 41 years, one year at a time. The chart produces some important data by measuring two things each year: 1.What was the stock market’s rate of return for the year? and 2.During the year, what was the lowest return the market had fallen to (from the peak) before ending on December 31? For example, in 2020, the stock market finished the year with a +16% rate of return. But, at some point during the year, the market had fallen -34% (from peak to trough) before finishing up +16%. In 2019, the market finished up +29% but had fallen -7% at some point during the year. Let’s look at the last three years.

From 2018 to 2020, the S&P 500 Index’s average return was +13%, but the average intra-year decline was -20%. So, you had to withstand wild downward swings in order to average the +13%. J.P. Morgan analyzes 41 years (not just three). If you measure all of those low points in each of the last 41 years, the data shows that stocks experience intra-year drops of -14.3% on average. The data also shows that annual returns were positive in 31 of 41 years. Take a moment to really think about those two data points, as well as the fears you may have had over the last 1, 2, 3, or 4 decades while investing in the stock market. Looking back, was the fear really necessary?

If you have any money in stocks, 41 years of history shows it would be wise to expect those stocks to fall around -15% at some point during any given year. Most people probably follow the Dow Jones Industrial Average (the Dow), not the S&P 500 Index. A -15% intra-year decline means the Dow could fall over 4,500 points at some point during 2021… and that would be completely normal, from a historical perspective. If you called me in a panic, I would say, “Relax, that’s just average”… assuming, of course, your portfolio was meticulously invested correctly according to your goals, objectives, time frame, and risk tolerance. And, whatever you do, please don’t try to outsmart the market by thinking #5 above doesn’t apply to you. The renowned economist, John Maynard Keynes, said back in the 30s, “Markets can stay irrational longer than you can stay solvent,” yet most people are still chasing performance or timing the market. The financial industry needs to do a better job getting clients to shift from being investors to becoming planners.

As always, if you have any questions be sure to seek the counsel of your trusted financial advisor. And, if you do not have one, perhaps it is time that you do.

The views expressed here reflect the views of Jeff Roberts as of March 1, 2021. These views may change as market or other conditions change. Actual investments or investment decisions made by Ameriprise Financial and its affiliates, whether for its own account or on behalf of clients, will not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not account for individual investor circumstances. Investment decisions should always be made based on an investor’s specific financial needs, objectives, goals, time horizon, and risk tolerance. Past performance does not guarantee future results, and no forecast should be considered a guarantee either.

The Standard & Poor’s 500 Index (S&P 500® Index), an unmanaged index of common stocks, is frequently used as a general measure of market performance. The index reflects reinvestment of all distributions and changes in market prices but excludes brokerage commissions or other fees. It is not possible to invest direct in an index

The Dow Jones Industrial Average (DJIA) is likely the most widely known measure of American stock market indicators. The index is more than 100 years old, includes only 30 individual stocks and is comprised of the largest, most established firms across a broad range of industries. The DJIA is calculated based on share price – providing a greater weighting within the index to those companies with a higher share price. Due to the small number of issues contained in the index, it does not always provide the most accurate measure of aggregate stock market performance.

Investment advisory products and services are made available through Ameriprise Financial Services, LLC, a registered investment adviser.

Ameriprise Financial Services, LLC. Member FINRA and SIPC.

© 2021 Ameriprise Financial, Inc. All rights reserved.



About the Author


Jeff Roberts, ChFC®, CRPC®, CFS®, CKA®, BFA, APMA®, AEP® is a Private Wealth Advisor with, and Founder and President of, MavenCross Wealth Advisors®, a private wealth advisory practice of Ameriprise Financial Services, LLC in Birmingham, AL. He specializes in fee-based financial planning and wealth management strategies and has been in practice for 28 years. To contact him, call (205) 313-9150 or visit his website at Offices are located at 31 Inverness Center Parkway – Suite 550, Birmingham, AL 35242 and 1817 Commons North Drive, Tuscaloosa, AL 35405.

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