Our next example is for the retirement stage. In a V-shaped recovery, it would take about 14 months in a multi-year bear market, it would take 5.8 years to see the $100,000 mark again, thanks to Keith’s contributions. It took about 2.8 years for the median line to reach the original portfolio value of $100,000 (the horizontal dashed line). An unlucky outcome usually means a multi-year bear market (such as 1929 or 2000) with several aftershocks. The red line represents the bottom decile or “unlucky” outcome. A lucky outcome can happen when the recovery is described as V-shaped. The green line represents the “lucky” outcome (the top decile, or top 10%, of all outcomes). The blue line represents the median portfolio: half of the grey lines are above it and the other half are below. Each of the grey lines represents one specific starting year since 1900. Keith wonders when his portfolio will get back to its pre-crash value of $100,000.įigure 1 displays the aftcast. Then a fractal event happens and his portfolio loses 25% of its value it’s now worth $75,000. Keith plans to add $4,000 each year to his portfolio. This reflects approximately a bond ladder with an average maturity of five to seven years at current yields, assuming no defaults and no capital gains/losses.
#HISTORY STOCK MARKET DRAWDOWN AND RECOVERY ANALYSIS PLUS#
certificates of deposit plus 0.5% as the net yield. stocks (S&P 500).Īs for the fixed income portion, we use the historical interest on six-month U.S. Half of the equities are in Canadian stocks (S&P/TSX composite) and half are in U.S. The asset mix is 70% equities and 30% fixed income.
Imagine a 30-year-old client named Keith with a portfolio worth $100,000. Let’s first look at an accumulation portfolio. It also provides the success and failure statistics with exact historical accuracy because it includes the actual historical equity performance, inflation and interest rate, as well as the actual historical sequencing/correlation of these data sets. It gives a bird’s-eye view of all outcomes for a given scenario. Aftcasting displays the outcome of all historical asset values of all portfolios, on the same chart, since 1900. This analysis uses actual market history, which we call “aftcasting” (as opposed to “forecasting”). Before Covid-19, it was estimated at US$253 trillion, and governments around the world have since introduced unprecedented monetary and fiscal policies in response to the crisis.Īssuming central banks can continue to bail out the economy, how many months or years would it take the portfolio to recover its original value? The global total debt was US$87 trillion in 2000. In the past, central banks jumped in to help - but these recoveries did not come cheaply. A bad downturn can wipe out 10 years of retirement income.Īfter a fractal event such as the market response to Covid-19, we all hope for a quick recovery. You might say, “Well, it only happens 3% of the time - why worry?” The answer is simple: plans can get ruined. The problem is the other 3% of the time, when markets are fractally going down then these strategies don’t help much. In the random mode, well-known strategies such as asset allocation, diversification, rebalancing, dollar-cost averaging and buy-and-hold work perfectly well.
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