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Why Your Plan’s IPS Is Probably a Fiduciary Landmine

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Why Your Retirement Committee Needs to Take Meeting Minutes

The Importance of Fiduciary Training for Retirement Plan Committees

Developing a High-Performance Retirement Plan Committee

Worst December Since the Great Depression? There Is More To The Story

J. Patrick Collins Jr., CFP®, EA

If you have been following the markets or the news, you have undoubtedly seen the common drumbeat that the stock market is poised to have its worst December since the Great Depression.  That sounds bad.  We thought we should dig into the numbers a bit to find out how bad this really is.  First, the articles are right.  The S&P 500, with about three hours left until the end of trading on December 31, 2018 is showing a -9.6% loss for the month.  That would rank as the second worst December ever.  What the articles don’t tell you is anything more than a -5.8% loss would be able to grab the same headline (the worst loss in December, not occurring during the Great Depression, was -5.8% in 2002).  I’m not saying a -5.8% loss isn’t really bad, but I’m not sure it’s in the same category as a headline of “worst since the Great Depression”.

When we look at all months (not just December), the current loss in the S&P 500 doesn’t even rank in the top 20 worst losses.  In fact, as it stands now, it is #29, putting it in the worst 2.5% of months since 1926.  Unfortunately, while this is unpleasant, it is not outside the realm of normal.  Based on history, we would expect to see a month like December about once every 3.5 years.  While we consider all the statistics, here are what some of the key takeaways are:

  • It doesn’t matter too much– unless you have all your money in stocks and you need to cash it in immediately, the monthly gyrations of the market don’t matter too much. Time IN the market matters and those who have 5 or 10 years before they need to touch their stock investments have a very high probability of seeing gains from these levels.
  • Diversification helped– while US stocks were hit hard in December, International Stocks (-6.3%), Emerging Market Stocks (-4.7%) and Bonds (+1.5%) all lessened the blow. Being diversified may not have generated a positive return, but it certainly smoothed out your ride during a very difficult month.
  • News headlines sell– newspapers and media outlets are not paid based on subscription sales and eyeballs on their websites. Think if they wrote, “Stock Market on Pace for 29th Worst Monthly Loss on Record”.  No one would read the article.  As you are reading any sort of analysis, you should always ask yourself, does the author have a bias?  He/she almost always does.  Media is trying to get your eyeballs, stock managers want to you to be optimistic and buy their fund, bond managers want you to be pessimistic and buy their fund.  Independent advisors are probably one of the only sources of news/commentary that tends to be thinking about the client’s interest.

We wish all of you a very happy holiday and a prosperous New Year!