You Survived the Worst Stock Market First Half in 52 Years

Now What?

Wasn’t 2020 supposed to be the shit show year?!

I’m not quite 50, so I can’t brag about how I’ve been there, done that in a market like this. These are uncharted grounds for most of us in the Financial Independence community.

The big question is, what’s next?

Maybe we can learn something from 50 years ago.

The S&P 500 ended June down over 21%. The last time a market got off to that poor start was way back in 1970. That year also suffered from inflation troubles. In fact, 1970 was the first of three big spikes. Inflation troubles lasted the entire decade and peaked in 1980.

FRED Inflation Graph
Image Source: Federal Reserve Public Data

The stock market recovered in the second half of 1970, and the S&P 500 finished the year up 0.10%. There were some lean years over the next decade, including losses of 17% and 29.7% in 1973 and 1974. However, the market still managed to post eight positive returns over the 11 years between 1970 and 1980.

macrotrends sp500 90 year chart
Image Source: Macrotrends — S&P 500 Index — 90 Year Historical Chart

One thing is clear: inflation’s impacts on the market and economy are significant.

Inflation in 2022 is numerically more like 1974 than 1970. That could be a bad sign for the second half-year in the markets.

Investors who stayed the course and continued to invest in the down market of 1974 were rewarded in 1975 when the S&P 500 returned 31.5%.

Keep your emotions in check.

OK, it’s pretty hard not to be emotional when you see your portfolio evaporating.

I have a geeky spreadsheet and chart that projects when I will hit my next financial goal. Since I’m not working, I’m relying only on investment returns to reach this goal. The chart is UGLY!

Financial Independence Target Date Graph
Image Source: Author

I used to open this spreadsheet often. This year, I’ve refrained and only opened it up at the end of each month to ensure I capture the data points.

Staring at the money going down the drain is stressful. So is reading the headlines at CNBC.

I reduced my read time at CNBC and other overly dramatic financial sources greatly to help keep the negativity out of the front of my mind.

As I wrote previously, it’s essential to focus on your ultimate goals:

Keep faith in your long-term strategy

Your goal is long-term wealth accumulation when you are saving for financial independence. The moves in the market from day to day, or even a year, are not all that important in a journey that you will fund for many years and maintain for many more after you stop contributing.

You will be better off if you can focus on your long-term goal and block out the near-term noise. You gain nothing by stressing about the market and its performance today. Even worse, you could let your emotions get to you and decide to sell in a down market.

Perhaps you realize your investments are more aggressive than your risk tolerance.

If nothing else, the stock market performance this year is providing a gut check.

Have you been too aggressive with your investment choices?

I wrote an article about assessing your risk tolerance during a market downturn.

In this excerpt, I wrote about the opportunity a crap market provides:

Declining investments are a sour pill. Take stock of the moment and remember how these declines make you feel. If you can shake the losses off and move on with life, you are investing within your risk tolerance. Know that you have a future goal and that the noise of today is of little concern compared to your plans.

On the other hand, if you are feeling very stressed by the declines in your investments, you need to assess them and prepare to make changes. Your investments should not cause you significant stress when your goal is financial independence.

The common goal in the FI community is to remove the stresses related to money. It takes mental strength to weather the ups and downs of investing. If you let either get to your head, your financial journey will not bring you the peace you seek.

You can make adjustments to your contributions that will make you more comfortable with future down-market conditions.

The future is unknown, but better returns from the stock market are likely — someday.

It’s easy to feel down when your investments are in the toilet. The first half of 2022 has been a dumpster fire.

One day we will all be able to say that we’ve been there and done that.

Even though no one can predict the future, there is hope. History shows that markets have rebounded, and economies have recovered from inflationary periods.

Do your best to keep your emotions in check and stay the course. Stop constantly looking at your money evaporating and remind yourself of your long-term goals.

Assess how you feel about the risks you’ve taken with your investments. There is no more real moment to do this than now. Make plans to adjust your future contributions to adjust risk in your portfolio, if necessary.

The rest of the year could be better, more of the same, or even worse. No expert can tell for sure.

We just need to hang on and ride this bear ‘till it quits.