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Four years ago, in mid-October 2022, the last real bear market hit bottom. Since then, markets have rebounded so strongly that an investor who held a steady 90:10 or 85:15 allocation, adding no new money, has likely passed the psychological milestone of doubling their portfolio from that low.
If you’re wondering how unusual that is, doubling in four years works out at roughly 19% a year, compounded. That’s well above what stocks deliver on average, and I’m pretty sure nobody’s crystal ball saw it coming. Cast your mind back to October 2022 and it’s easy to see why.
Stocks were deep in a proper bear market, which is bad enough, but the standout feature of that year was that boring old bonds, the ones who are supposed to sit quietly in the corner and steady your nerves, got jealous of all the fun stocks were having and decided to join the party. With inflation running hot and interest rates climbing, they had one of their worst years on record, just to give investors a bit of extra jeopardy. And they sulked for another few years after stocks had moved on.
At the time, nobody was saying “this is the bottom, get in now.” Most of us were just hoping the pain would stop. That’s the sneaky thing about bear market lows: they never announce themselves. Those who stayed invested were rewarded, and those who stepped aside to wait for “clarity” had to buy back in at higher prices, if they came back at all.
To put this all into perspective, the average 401k balance in Q3 2022 was around $100,000. Doubling it in four years by stuffing dollar bills under the mattress would have meant saving nearly $2,100 every month for 48 months. Few households could manage that, yet an investor who did nothing but stay invested got there anyway. That’s the power of staying invested, and why it’s time in the market, not timing the market, that counts.
You have to wonder how much longer this bull run can last, and whether a standard 60:40 portfolio will also double before it runs its course. Nobody knows. A 60:40 would have been a gentler ride down in 2022, but a slower climb back. What we do know is that it won’t happen without time in the market.
The losses of 2022 made stocks feel riskier than they were, and four years of gains can make them feel safer than they are. So on the fourth anniversary of this bull market, let’s celebrate our gains, hope for the best and stay sensible about protecting the downside. My own portfolio, roughly 80:20, hasn’t quite doubled, but if the bull makes it to a fifth anniversary I should pass that milestone, fingers crossed. Enjoy the ride.
While our portfolio has not changed much at all in value over the past seven years. This is because we have been utilizing it to pay for all of our living expenses since we retired while we await claiming Social Security in January of ‘28. This is also with a fairly conservative 45/45/10 allocation. We are truly blessed.
Nice retrospective on the recent bull market. I suspect that many, like myself, have been (at least) partly stunned by the wealth creation. I previously wrote an article about how as a consequence of this doubling, as you put it, my wife and I accidently hit Coast FIRE this year. We did not anticipate that happening so fast.
Of course, this paper wealth could go away just as easily as it arrived. But I suspect it has many folks feeling quite wealthy. I, like you, am very much concerned that we could be due for a correction.
Good article Mark. I also found an article by Bill Bernstein and Professor McQuarrie titled: “Have Stocks Reached a Permanently High Plateau?” available without charge on:
http://www.muckrack.com/william-bernstein/articles to be relevant to this discussion.
This review reinforces my desire for an asset allocation such that, no matter what happens in the market, or when, or for how long, there is absolutely nothing I need to do, apart from rebalancing when warranted.
Jack, thanks for the link, it’s a thought-provoking read, and I get where you’re coming from on portfolio construction. I’m currently 80:20 equities to bonds, and a big correction would leave me looking distinctly green around the gills.
What steadies me is my ten-year runway of secure income, which I plan to keep topped up at that length. It lets me be adventurous enough with the portfolio to capture the volatile upside while still protecting the downside. But I never forget that this is the money I need to live a decent life, so I’m with you 100% on building a portfolio that survives, with enough juice left to keep life comfortable whatever the markets throw at it.