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spring 2009 |
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F
I N A N C I A L
Lessons from
history
A closer look at history offers
lessons of hope and opportunity
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Stock Photo |
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As the spectre of a
financial crisis not seen in several decades stalks the markets and the
financial media promotes a largely pessimistic view, some investors may
begin to lose faith in their equity investments.
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By Keith Butler |
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As the spectre of a financial crisis
not seen in several decades stalks the markets and the financial
media promotes a largely pessimistic view, some investors may begin
to lose faith in their equity investments.
What can we do to drown out the media
noise and gain perspective? There is only one real option
— we must study the history of past
market events for clues and guidance about what the future may bring.
There are three common themes that link the major market downturns of
the last 40 years:
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There is significant uncertainty in
the short term about the direction of capital market.
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There is a risk to being out of the
market —
it is impossible to predict precisely
when a bear market will turn into a bull.
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Fiscal and monetary policies have
contributed to eventual market recoveries.
Understanding that there are common
threads that link market downturns is critical to navigating the current
market environment. It allows us to use history as a guide, albeit an
imperfect one, when we might otherwise feel rudderless.
Even a cursory glance at past market
performance shows that bear markets usher in bull markets. We can also
see that the overall trend points to higher long-term returns in equity
markets.
After the last 13 bear markets in the
United States —
going back to 1948
— each one recovered and led to a
bull market with substantial gains. The average bear market saw stocks
fall by 20% and lasted 11 months. After bear markets ended, it took
about 20 months on average for the S&P 500 to recover and reclaim its
losses. In the 12 months after the start of each bull market, the
average gain was more than 35% while the worst post-recovery gain was
still 16% over the following year. The best post-recovery gain was
almost 60%.
To get a copy of the full article and
speak with an MD Management advisor, call (800) 229-1798.
MD Financial
includes CMA Holdings Incorporated companies offering financial planning
and a banking referral service through MD Management Limited, mutual
funds by MD Funds Management Inc. and MD Private Trust Company,
investment counselling services by MD Private Investment Management
Inc., estate and trust services by MD Private Trust Company and
insurance products by MD Life Insurance Company and MD Insurance Agency
Limited.
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