March 19, 2025 • 28 mins
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Welcome back to The Optometry Money Podcast! In this episode, host Evon Mendrin, CFP®, dives into the topic of stock market declines—a reality for every long-term investor. With headlines buzzing about economic concerns, tariffs, and policy changes, market volatility can feel unsettling. But how common are market declines really? And what should optometrists do when they happen?
What You’ll Learn in This Episode:
✅ How often stock market declines occur—historical data on 5%, 10%, 15%, and 20% drops
✅ What happens after market declines—average returns after 1, 3, and 5 years
✅ The importance of diversification and why international stocks matter
✅ Why trying to time the market is dangerous and can hurt long-term returns
✅ Key actions optometrists can take during a market downturn
✅ How rebalancing, tax-loss harvesting, and Roth conversions can be smart financial moves
✅ Why staying the course is the best strategy for long-term investors
Market declines are normal and expected, but they don’t have to derail your investment plan. Evon shares valuable insights to help optometrists make informed decisions, stay disciplined, and continue building their financial future—even during uncertain times.
Resources & Links:
🔗 Click here to Sign up for the Eyes On The Money Newsletter and get your Guide to 2025's Most Important Numbers
🔗 Learn more about Optometry Wealth Advisors – www.optometrywealth.com
🔗 Have a question? Contact Evon – podcast@optometrywealth.com
Resources & Links:
🔗 US Stock Market History of Ups and Downs
🔗 Reacting Can Hurt Performance - Missed Days Hurts Returns
🔗 Markets Have Rewarded Disciplined Investors
If you found this episode helpful, please share it with a fellow OD! And don’t forget to subscribe and leave a review on your favorite podcast platform.
The Optometry Money Podcast is dedicated to helping optometrists make better decisions around their money, careers, and practices. The show is hosted by Evon Mendrin, CFP®, CSLP®, owner of Optometry Wealth Advisors, a financial planning firm just for optometrists nationwide.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Evon (00:04):
Welcome back to the Optometry Money Podcast, where
we're helping ODs all over thecountry make better and better
decisions around their money,their careers, and their
practices.
I am your host, Evon Mendrin,Certified Financial Planner(TM)
practitioner, and owner ofOptometry Wealth Advisors an
independent financial planningfirm just for optometrists
nationwide.
(00:25):
And thank you so much forlistening today.
Really.
Appreciate your time andattention and on today's
episode.
I wanna dive into stock marketdeclines because news headlines
have been quite exciting latelyas we read about government
policy, as we read abouteconomic concerns, tariffs,
stock market fluctuations.
(00:46):
All of those things areproviding plenty of fodder for
all of these publications.
Vying for your attention, tryingto get you to read, trying to
get you to click, trying to getyou to watch, and it has been a
rocky start to the year so farfor the stock portion of your
investments.
from their February highsthrough, as recording through
(01:06):
March 14th, the US stock marketdeclined roughly 9%.
It hit, it dipped below 10% forabout a day there, and the
global stock market dipped about5%.
So yay for diversification as wesee those international global
stocks help out there.
It's nothing crazy.
These, these declines aren'tanything crazy, but it's been
(01:28):
enough to cause many to getnervous, especially after we've
had a few years of really strongpositive returns.
And where will market prices gofrom here?
Well, I don't know.
You don't know.
The reality is nobody knowsthese prices will move
unpredictably as new informationcomes in.
(01:48):
What we do know is that stockmarket declines are actually
quite common and happen with asurprising amount of regularity.
These are things that we areexpecting to see as we invest
for several decades of ourlives.
These aren't things that arerare and scary and we should try
(02:09):
to be avoiding altogether.
These are things that are expart of the expected experience
when we invest in the broadcollection of businesses and
corporations all over the world.
And so I wanna talk through alittle bit of historical data to
try to provide a wider contextaround stock market declines,
(02:29):
because it's really easy to onlyfocus on what's happening today
as if it's a rarity, it's reallyeasy to get scared about what's
happening right in this moment.
So I want to provide a morehistorical point of context.
And so a, as we look back, andI'm gonna talk about the US
stock market specifically E,especially the S&P 500 index.
And I wanna talk about the USmarket, not because I am a fan
(02:52):
of only investing in only theUnited States.
But because there's a reallygood data set going back quite a
bit longer than other globalindexes.
So there's a lot of data for theUS stock market and although the
S&P 500 is not the whole USstock market, it is primarily
the largest 500 companies or soin the United States, because
(03:14):
these companies are so large, ittends to move pretty close with
the US stock market as a whole.
So we'll look at the US markettoday and the first question I
wanna talk about is, how oftenshould we or have we expected
stock market declines to comeup?
And we've seen declines of 10%or more with consistency over
(03:36):
the years, depending on the yearyou start with.
So I'm looking at a period of1954 through 2023 for the US
stock market.
We've seen a decline of 5% ormore about once a year.
the average length of thosedeclines was 101 days.
So from top to bottom, about 101days was the average length.
(03:57):
We see a decline of 10% or moreabout once every 30 months or
so.
So about once every two years.
The average length for that fromtop to bottom was about 234
days.
We've seen a decline of about15% or more about once every
five years, and that those haveon average lasted about 345
(04:21):
days, so almost a year from topto bottom on average.
The last time we saw somethinglike that was actually 2020.
March, 2020, which is, which isactually a really short period.
That whole decline from top tobottom and back again was just
about a month.
So that was a really short,major decline.
And we see declines of about 20%or more about once every six
(04:44):
years.
The average length of those fromtop to bottom was about 370
days.
And again, the last time we sawthat was about March, 2020, so
during the Covid years.
So we tend to see declines withsome regularity, with some
consistency over time.
If you were, if you are along-term investor, aiming
towards retirement, aimingtowards long-term financial
(05:06):
independence, you're gonna beinvested for several decades.
And so it is likely that you'regonna see more of these types of
declines.
Over the years throughout yourinvesting experience.
And another way to look at thatis that if we look back over the
last 45 years again at the USstock market, the US stock
market has averaged includingdividends in annual average
(05:29):
return of about 12%.
Out of those 45 years, themajority so 35 of them ended
with positive returns.
So this is 1979 through 2024.
However, within each year therewas an average decline of 14%.
(05:50):
So think about that.
To achieve those long-termaverage returns you needed to
have put up with, with a declinewithin each year on average of
about 14%, even if that yearended positive.
So a double digit decline withina year would be considered
average.
Typical.
(06:11):
Of course, there's a wide rangeof ups and downs to get the
average numbers.
We, we never experienced theactual average.
We are experienced the up, upsand downs around the average,
but.
But if we sort of smooth thatout, that's kind of the typical
experience is that yes, in orderto get that average long-term
annual return, we have to put upwith that kind of nonsense.
(06:34):
And that's sort of theexpectation.
So, again, declines are a, anormal part of that investing
experience.
and, and when we think aboutafter the decline, we see that
our expected returns are, arepositive after declines.
We've seen that historicallyaverage returns, post declines
have been largely positive.
And so, and which is importantto think about because the, the
(06:55):
temptation is, is to, thetemptation we feel is to take
action.
It's to sell.
When there are declines, it's totry to time the ups and downs
and get out and, and flee tosafety.
But selling as we'reexperiencing those declines may
be one of the single worstdecisions we can make at the
worst time.
And, and what we see in what,what we, what we would expect is
(07:18):
that on average returns, havehistorically been positive after
stock decline.
So if we look back againhistorically, we're going back
further now from 1926 through2024, and if we look at the
declines of 10% or more, what wesee is that on average one year
later, the return is 11.7%.
(07:40):
That's the average return oneyear later, after those
declines, the average returnthree years after those declines
was 10.3%.
And then if we look five yearsafter those declines, the
average return five years afterthose declines has been about
9.6%.
And so while we never know howdeep they'll go or how long the
(08:02):
declines will last, we have seenhistorically that businesses,
even through these declines,even through recession.
Businesses, corporations willcontinue to do what they need to
do to sell their products andtheir services and Earn a profit
for you, the shareholder.
And it's not much different thanyour Optometry practice.
If you own a practice or if youwork in a private practice, your
(08:23):
practice is going to continue todo what it can, regardless of
the situation at hand.
To sell your services, to sellyour products, your frames,
lenses inventory, and tocontinue to serve patients, to
continue to serve yourcommunity, to continue to
provide for your team, and tocontinue to Earn a profit for
the owner.
And there has been quite a rangeof ups and downs.
(08:45):
If we look back historically, wecan look at, for example, the
Great Depression, which wasabout an 80% decline.
Which lasted 27 months from topto bottom That's almost a two
year period and a substantialdecline that could not have been
fun to live through.
We can look back at the Covidperiod on the other end, which
is a roughly 34% decline, but itonly lasted a month.
(09:08):
And then we see periods of timesin between.
And what I'll try to add intothe show note is a chart showing
the.
Eventual returns and how longthose positive returns periods
last after these periods ofdecline.
What we've seen historically, isthat poor returns do tend to be
followed by positive returns,and you as long-term investors
(09:29):
are able to buy all of thesebusinesses and their future cash
flows at lower prices, lowervaluations.
So for those that are regularlyinvesting and adding to your
investment accounts, whetherit's through your 401(k)s, your
SIMPLE IRAs, or adding to, RothIRAs or traditional IRAs, maybe
you're adding to taxablebrokerage accounts.
These are opportunities for you,a long-term investor to continue
(09:52):
to buy all of this stuff thatyou want to own for decades on
sale.
Now that's different.
If you are someone who is anactive investor and trying to
hand select individual stocks,individual corporations.
What we're talking about here isthe broad market.
If we're going to experience therisk, we know there's short-term
(10:14):
risk with investments.
If we're going to experience therisk, we might as well stick
around for the eventual hopefulreturn on the other side.
And what we also see is thatmarkets, if we look broader at
the global stock market, marketshave rewarded discipline
historically.
And I'll, I'll try to addanother chart in the show notes
that shows this.
(10:34):
But for all of time we've seenevents that would cause us to
decide not to invest sometimesreally dramatic, really scary
events.
So we've seen two world wars anda great depression.
We've seen global conflicts.
We've seen economic shocks.
We've seen terrorist attacks.
9/11, we've seen The GreatRecession, which is a near
meltdown of the global financialsystem, and we've survived that
(10:59):
by the way, we've seen a globalpandemic.
Yet markets have rewardedlong-term investors that are
patient and that are able tostay the course.
Of course, history isn'tguaranteed to happen in the
future.
We're talking about historicalinformation, right?
So the future is alwaysuncertain.
We know that that's the natureof investing.
(11:20):
We're putting our dollars atrisk or buying risky assets.
So that we can Earn a higherreturn over long periods of time
relative to more conservativeassets like cash, CDs, even
short term government bonds,things like that.
So history is not guaranteed tohappen into the future, but
(11:41):
history is a fantastic way toget reasonable expectations.
And so that's what we're tryingto gauge here.
We're trying to gauge reasonableexpectations around how often
declines happen, roughly howlong they're expected to last,
and what we should do aboutthat.
Again, that short term risk anduncertainty is the price we pay.
(12:02):
The price of admissions, so tospeak, for higher long-term
returns we expect when investingin the stock market all over the
world over more stableinvestments.
As the saying goes, no pain, nopremium.
If we're not willing to take onrisk, we shouldn't expect higher
returns over cash, for example,over government bonds, things
(12:23):
like that, regardless of thecircumstances.
Remember what you're investingin, you're investing in among
the best corporations all overthe world and those best
corporations all over the world.
We would expect them to continueworking, working to sell their
products and services andcontinuing to Earn a profit.
And so with that in mind, we, wecan kind of get the gist that
(12:45):
declines happen on someregularly.
This isn't something we shouldtry to avoid.
This is a normal part ofinvesting for the long term and.
Is this time different?
You, you know, you often hearthe saying, that the most
dangerous word in investing isthis.
Time is different.
Well, the reality is this timeis different every time's
different.
(13:05):
That is the cause of eachdecline, the cause of economic
uncertainty, the causes, causesof recessions are always
different.
The exact context and detailsare always different, but what
isn't different is the fact thatdeclines happen, and we've seen
that with some regularity.
What isn't different is thatthere's crises, that there's
(13:28):
nervous investors, that there'sstuff happening in the world
that cause the profits and cashflows of these businesses to be
more uncertain in the short termwe've seen that declines even
very dramatic declines due toreally serious world events have
happened already.
We have experienced them lookingback through history And so
(13:49):
while they're not always fun togo through.
They aren't something we shouldbe fearful of.
They're something that we shouldbuild into our planning.
We should build into ourexpectations.
And these are things that weshould weather.
And so what are some actionsthat you, optometrist should
take during declines?
What, what are some things weshould do?
there are some reasonable thingsthat we should do.
Number one.
(14:09):
Don't, I'm gonna start with,they don't, don't give into the
temptation to time the swings inmarkets.
Because market swings each day,each month, even year, are
incredibly unpredictable.
There is no expectation that wewill ever make the right
decisions to sell and then tobuy in again at exactly the
right time, you have to timethose two separate decisions
(14:31):
perfectly.
And there's that temptation tosay, okay, I'm gonna sell out
now.
And get back in at the bottom,or I'm gonna sell out now and
I'm gonna get back in whenthings settle down, quote
unquote, whatever, whatever thatreally means.
But, I think the Covid exampleis a really good example to look
back at.
It's something that recentlywe've all sort of experienced
for the most part.
(14:51):
and, and what's interesting isthat the covid decline was
roughly 34% for the US stockmarket, and it lasted about a
month.
It happened quickly, veryquickly, and then ended far more
quickly than most of the otherperiods we've seen before.
I.
The daily ups and downs were asight to behold.
I actually remember, Ipersonally, as a professional, I
(15:14):
don't watch the market each andevery day.
It doesn't mean anything to me.
The daily ups and downs, there'snothing actionable about that.
But during Covid, I rememberdownloading Yahoo Finance and
some of these other apps.
Just so I can watch what clientswere experiencing, I wanted to
feel the daily alerts and theups and downs that we were, we
(15:35):
were going through.
And my goodness, it was a sightto behold.
So for example, if we look backat March, 2020, here are the,
here are some consecutivetrading days, one after another
March 11th, negative five.
Decline.
March 12th, negative 10%decline.
This is a daily drop, right?
So negative 5% drop followedimmediately by a negative 10%
(15:59):
drop.
Then we have a 9% increase, so9% positive day.
Then we have a 12% drop, then a6% positive day, then a 6%
decline.
These are one days afteranother.
From March 12th, we saw a 10%drop in one day.
That was immediately followed bya 9% positive day.
(16:19):
That was the, that was tied forthe highest daily return of that
whole period, and that wasimmediately followed by the
largest 12% decline, the largestdaily decline during that whole
period.
Stock market swings day-to-daycan play with our brains as
we're experiencing them, andthere's no conceivable chance of
timing the right time to selland the right time to buy while
(16:42):
also having the mentalconviction, the mental fortitude
to actually follow through on itwhen things are moving like
that.
And there's a pretty substantialcost to not being invested and
missing out on just a few of thebest days.
of returns and I'll, I'll addanother chart, or at least I'll
link to another chart in theshow notes that talks about, you
look at the S&P 500 returns fora whole period, but how those
(17:06):
returns drop.
If you miss the best one day andthe best five days and the best
15 days and the best 25 days,the more days you start missing
out on, because you miss timethose specific days, the more
and more your returns actuallystart to look like treasury
bills.
Short term government debt.
(17:28):
And so there is a real, sothere's a, there's a pretty
substantial cost to our ownbehavior to, to miss time to
trying to take action and makingthe wrong decisions.
And unfortunately, personallyI've seen firsthand when people
sell and never actually reinvestthe dollars even years later,
always looking for thatopportunity and then realizing
(17:50):
they missed the opportunity.
So then they continue to lookfor the next opportunity and so
on and so forth.
And we can only look back at thedollars lost while sitting in
cash or, or not being invested.
So we cannot give in thattemptation to, to try to take
action and time these swings,these swings will play tricks on
our brain.
And so very often the bestcourse of action is to simply
(18:12):
stay invested.
The next thing we should do isremember our time horizon and
then review that you have theappropriate mix of stocks,
global stocks and cash or bondsand other assets that make sense
for your financial goal.
Remember the goal that you'regonna be investing toward, and
how long are you going to beinvested before you actually
(18:33):
need the money?
Because as we look back again,historically when you look at
really short term periods oftime, like a month or a year.
There is a pretty wide range ofoutcomes, both positive and
negative, and it's reallyunpredictable where returns are
gonna go over a very shortperiod of time.
But as you lengthen a timehorizon, so as, as you look at
(18:54):
five year periods of time, 10year periods of time, 15 year
periods of time, and beyond 20or 30 year periods of time, what
you start to see is that returnsbecome more and more reliably
positive and to a certain pointas you go far enough.
Even though there aren'tsubstantial, there isn't a
substantial data set around 20year or 30 year periods.
(19:17):
What you start to go like 15years and beyond, what you start
to see is that returns areprimarily positive.
Looking back again, depending onthe, the time horizon you're
looking at.
But going back, for example, tothe seventies.
Through 2024, there were nonegative periods of time that
were 20 years or longer.
And so the longer your timehorizon, the more time you have
(19:38):
to go through those declines andthrough the eventual, we hope
will be the recovery on theother side.
The longer your time horizon,the more you're able to lean on
that stock side of the mixrather than the bond side of the
mix.
And so now is a really goodopportunity if you're going
through, times that are makingyou uncomfortable.
It's a good opportunity to sortof.
(19:58):
Check yourself to say, okay, howdo I, you know, what really is
my risk tolerance?
What really is my time horizon?
How much investment risk can Irealistically take financially,
and do I have the appropriatemix of stocks versus bond versus
bonds that's appropriate forwhat your family's investing
toward?
A thoughtful mix of stocks andbonds is going to be really
(20:21):
helpful to weather thesedeclines, weather these storms,
regardless of what stage of, ofyour career you're at, whether
you are about to retire inretirement, or whether you are
continuing to invest and buildassets, that thoughtful mix of
stocks and bonds is reallyimportant.
The next thing we can do isrebalancing, right?
when I talk with clients, we gothrough this big conversation
(20:42):
about education and eventuallywe land at a mix of stocks and
bonds that is appropriate forthe situation.
And so we're targeting, firstly,we're targeting certain
percentage of, of investmentstowards certain categories,
stocks versus bonds, forexample, if there's bonds in the
mix or US stocks versusinternational stocks or large
(21:04):
stocks versus small value versusnot And so we we're targeting
certain characteristics orcertain categories and certain
percentages.
And so what we're balancing isis that.
We're trimming the categories,our investments that are far
higher than we're targeting, andwe're adding those dollars back
to categories that are too low.
And so that's not something youneed to do every day, but you
(21:26):
might wanna look at it at acertain part of the year, for
example, whether it's quarterlyor annually, or you might wanna
look at it as, as I do, as acertain drift away from your
target.
So if you are, so, if certaincategories are, for example, 15
or 20% higher than your target.
Well, that might be a, a triggerto rebalance.
And so what this is, is it'skind of a systematic way of
(21:47):
selling high and buying low.
On a set system without anyemotion.
It, it's just, there'sparticular trigger points that
tell you to do that.
And for many of you, yourongoing deposits to 401(k)s,
your ongoing deposits to otheraccounts are already doing this.
They're, they're already fillingin the holes each and every
month, or each and every payperiod.
But rebalancing is something welook at doing, especially when
(22:10):
there's substantial declines.
That might be something we tryto do.
number two is tax lossharvesting.
And this doesn't make sense foreverybody but.
When you look at taxablenon-retirement accounts, if
you've recently invested dollarsin those funds that you've
invested in, declined for acapital loss, what you might
consider doing is selling thosefunds and then immediately
(22:32):
reinvesting those, those dollarsinto something else that's not
substantially identical.
And there are certain rules toavoid what's called a wash sale.
So I'll put a link into the shownotes that talk more about the
rules around that.
But really all that is, is a taxplanning opportunity.
It's not a market timingopportunity.
This is a tax planningopportunity.
(22:52):
All we're trying to do is takethose capital losses and either
use them to offset other capitalgains from selling other stuff.
Or we can use up to$3,000 of thecapital losses against the rest
of your income like wages orbusiness profit.
And if there's any additionalcapital losses, those extra
losses can be, can be forward,carried forward into future tax
(23:15):
years.
And so that might be a taxplanning opportunity we'll look
at.
The next thing we might thinkabout is Roth conversions.
And so in years that you alreadyknow, it's going to make sense
from a tax standpoint to do Rothconversions.
A decline is a really great timeto do them.
And the reason that is, isbecause you're already planning
to convert a certain amount ofdollars.
(23:36):
Well, when prices decline,you're able to convert the same
amount of dollars.
But more shares, more shares ofmutual funds and more shares of
ETFs.
And that means more shares ofyour investments are now growing
tax free in the Roth account.
So a little fun timing,opportunity there if you already
know from a tax planningopportunity Roth conversions
(23:58):
makes sense.
what else should you consider?
Well.
After those perfectly reasonableactions to take, looking at your
time horizon and reviewing andreviewing your appropriate mix
of stocks and bonds, consideringrebalancing, considering where
it makes sense, tax loss,harvesting, considering Roth
conversions, after you take someof those reasonable actions, the
(24:20):
next best thing to do is to donothing.
Very often.
The best action is simply to donothing and stay invested based
on the long-term investment planyou put together.
Go for a walk, have a cup ofcoffee, turn the TV off, turn
your phone on airplane mode.
Go talk with friends and familyand just enjoy life.
(24:41):
Focus primarily on the thingsthat are directly within your
control.
That is improving your skills asan optometrist, as a
practitioner, and improving yourpractice.
Those are the things that arewithin your control and that are
gonna have the biggest benefiton your income potential, your
cash flow, and your ability toreinvest those dollars into
(25:02):
other assets.
And so focus on those things youhave the most control over.
Otherwise, please do not look atthis stuff every single day.
It is very likely not going tobenefit you to doing that.
It's very likely to simply add amore stress to your life and
look at these things with awider perspective, with a longer
perspective, especially aperspective that matches your
(25:25):
time horizon.
We're talking from theperspective of a long-term
investor, primarily aimingtowards financial independence,
long-term retirement.
If you're planning to invest fora goal that's next year or in a
couple years from now, wellthat's a different conversation.
That's really where thatappropriate mix of stocks,
bonds, and cash and other thingsis really important.
(25:46):
You wanna match your investmentmix to your time horizon.
And so, hopefully this ishelpful.
Again, we, we see a lot of thesescary headlines.
I, I try to provide a, a longerterm perspective, more context
historical data.
I think looking through that ishelpful, even if it doesn't make
it less uncomfortable.
At least it helps you to, to geteducated around how often these
(26:09):
things happen.
And, and what that really meansfor you.
And if you have any questions,please reach out.
You can reach out to, topodcast@optometrywealth.Com.
If you'd like to talk about howto improve your own investments,
what these declines mean foryou, and your investment goals,
and your cashflow and yourretirement planning, reach out
to me.
There are so many opportunitiesto improve investments.
(26:31):
You know, in a, in a lot of waysinvesting is solved because you
can very easily invest sobroadly, so inexpensively and,
and with very little funds,things can be simple.
But, but there are still plentyof opportunities to improve our
investments, and I've seen someexamples lately where, new
clients had way too manyaccounts and needed badly to
(26:53):
consolidate to be able to managethese accounts more, more
easily.
we've seen where there are,where there are, primarily with
large financial institution,institutions, whether in each
account there are, you know, 10to 20 different funds.
All really expensive, activelymanaged funds where we can
simplify and, create a much morecost effective and improved
(27:15):
portfolio with a lot less funds.
we've seen opportunities wheretaxable investment accounts had
really tax inefficient funds.
a lot of active managed fundsthat the categories that were in
these accounts, the type offunds didn't match the type of
accounts they were in.
And so there are a lot ofopportunities to.
To improve the investments.
Please reach out if you havequestions.
(27:36):
Or if you have other questionsyou'd like to see on the
podcast, would love to see that.
And if you'd like to learn more,you can check out our weekly
Eyes On The Money Newsletter.
I'm writing about this, aboutstudent loans, about, practice
finances and how that impactsyour, your, your household
cashflow.
I'm writing about all of thesefun topics each and every week.
so if you wanna learn more, ifyou wanna follow along, you can
(27:57):
subscribe at the link in theshow notes and we will catch you
on the next episode.
In the meantime, take care.
Welcome back to the Optometry Money Podcast, where
we're helping ODs all over thecountry make better and better
decisions around their money,their careers, and their
practices.
I am your host, Evon Mendrin,Certified Financial Planner(TM)
practitioner, and owner ofOptometry Wealth Advisors an
independent financial planningfirm just for optometrists
nationwide.
(00:25):
And thank you so much forlistening today.
Really.
Appreciate your time andattention and on today's
episode.
I wanna dive into stock marketdeclines because news headlines
have been quite exciting latelyas we read about government
policy, as we read abouteconomic concerns, tariffs,
stock market fluctuations.
(00:46):
All of those things areproviding plenty of fodder for
all of these publications.
Vying for your attention, tryingto get you to read, trying to
get you to click, trying to getyou to watch, and it has been a
rocky start to the year so farfor the stock portion of your
investments.
from their February highsthrough, as recording through
(01:06):
March 14th, the US stock marketdeclined roughly 9%.
It hit, it dipped below 10% forabout a day there, and the
global stock market dipped about5%.
So yay for diversification as wesee those international global
stocks help out there.
It's nothing crazy.
These, these declines aren'tanything crazy, but it's been
(01:28):
enough to cause many to getnervous, especially after we've
had a few years of really strongpositive returns.
And where will market prices gofrom here?
Well, I don't know.
You don't know.
The reality is nobody knowsthese prices will move
unpredictably as new informationcomes in.
(01:48):
What we do know is that stockmarket declines are actually
quite common and happen with asurprising amount of regularity.
These are things that we areexpecting to see as we invest
for several decades of ourlives.
These aren't things that arerare and scary and we should try
(02:09):
to be avoiding altogether.
These are things that are expart of the expected experience
when we invest in the broadcollection of businesses and
corporations all over the world.
And so I wanna talk through alittle bit of historical data to
try to provide a wider contextaround stock market declines,
(02:29):
because it's really easy to onlyfocus on what's happening today
as if it's a rarity, it's reallyeasy to get scared about what's
happening right in this moment.
So I want to provide a morehistorical point of context.
And so a, as we look back, andI'm gonna talk about the US
stock market specifically E,especially the S&P 500 index.
And I wanna talk about the USmarket, not because I am a fan
(02:52):
of only investing in only theUnited States.
But because there's a reallygood data set going back quite a
bit longer than other globalindexes.
So there's a lot of data for theUS stock market and although the
S&P 500 is not the whole USstock market, it is primarily
the largest 500 companies or soin the United States, because
(03:14):
these companies are so large, ittends to move pretty close with
the US stock market as a whole.
So we'll look at the US markettoday and the first question I
wanna talk about is, how oftenshould we or have we expected
stock market declines to comeup?
And we've seen declines of 10%or more with consistency over
(03:36):
the years, depending on the yearyou start with.
So I'm looking at a period of1954 through 2023 for the US
stock market.
We've seen a decline of 5% ormore about once a year.
the average length of thosedeclines was 101 days.
So from top to bottom, about 101days was the average length.
(03:57):
We see a decline of 10% or moreabout once every 30 months or
so.
So about once every two years.
The average length for that fromtop to bottom was about 234
days.
We've seen a decline of about15% or more about once every
five years, and that those haveon average lasted about 345
(04:21):
days, so almost a year from topto bottom on average.
The last time we saw somethinglike that was actually 2020.
March, 2020, which is, which isactually a really short period.
That whole decline from top tobottom and back again was just
about a month.
So that was a really short,major decline.
And we see declines of about 20%or more about once every six
(04:44):
years.
The average length of those fromtop to bottom was about 370
days.
And again, the last time we sawthat was about March, 2020, so
during the Covid years.
So we tend to see declines withsome regularity, with some
consistency over time.
If you were, if you are along-term investor, aiming
towards retirement, aimingtowards long-term financial
(05:06):
independence, you're gonna beinvested for several decades.
And so it is likely that you'regonna see more of these types of
declines.
Over the years throughout yourinvesting experience.
And another way to look at thatis that if we look back over the
last 45 years again at the USstock market, the US stock
market has averaged includingdividends in annual average
(05:29):
return of about 12%.
Out of those 45 years, themajority so 35 of them ended
with positive returns.
So this is 1979 through 2024.
However, within each year therewas an average decline of 14%.
(05:50):
So think about that.
To achieve those long-termaverage returns you needed to
have put up with, with a declinewithin each year on average of
about 14%, even if that yearended positive.
So a double digit decline withina year would be considered
average.
Typical.
(06:11):
Of course, there's a wide rangeof ups and downs to get the
average numbers.
We, we never experienced theactual average.
We are experienced the up, upsand downs around the average,
but.
But if we sort of smooth thatout, that's kind of the typical
experience is that yes, in orderto get that average long-term
annual return, we have to put upwith that kind of nonsense.
(06:34):
And that's sort of theexpectation.
So, again, declines are a, anormal part of that investing
experience.
and, and when we think aboutafter the decline, we see that
our expected returns are, arepositive after declines.
We've seen that historicallyaverage returns, post declines
have been largely positive.
And so, and which is importantto think about because the, the
(06:55):
temptation is, is to, thetemptation we feel is to take
action.
It's to sell.
When there are declines, it's totry to time the ups and downs
and get out and, and flee tosafety.
But selling as we'reexperiencing those declines may
be one of the single worstdecisions we can make at the
worst time.
And, and what we see in what,what we, what we would expect is
(07:18):
that on average returns, havehistorically been positive after
stock decline.
So if we look back againhistorically, we're going back
further now from 1926 through2024, and if we look at the
declines of 10% or more, what wesee is that on average one year
later, the return is 11.7%.
(07:40):
That's the average return oneyear later, after those
declines, the average returnthree years after those declines
was 10.3%.
And then if we look five yearsafter those declines, the
average return five years afterthose declines has been about
9.6%.
And so while we never know howdeep they'll go or how long the
(08:02):
declines will last, we have seenhistorically that businesses,
even through these declines,even through recession.
Businesses, corporations willcontinue to do what they need to
do to sell their products andtheir services and Earn a profit
for you, the shareholder.
And it's not much different thanyour Optometry practice.
If you own a practice or if youwork in a private practice, your
(08:23):
practice is going to continue todo what it can, regardless of
the situation at hand.
To sell your services, to sellyour products, your frames,
lenses inventory, and tocontinue to serve patients, to
continue to serve yourcommunity, to continue to
provide for your team, and tocontinue to Earn a profit for
the owner.
And there has been quite a rangeof ups and downs.
(08:45):
If we look back historically, wecan look at, for example, the
Great Depression, which wasabout an 80% decline.
Which lasted 27 months from topto bottom That's almost a two
year period and a substantialdecline that could not have been
fun to live through.
We can look back at the Covidperiod on the other end, which
is a roughly 34% decline, but itonly lasted a month.
(09:08):
And then we see periods of timesin between.
And what I'll try to add intothe show note is a chart showing
the.
Eventual returns and how longthose positive returns periods
last after these periods ofdecline.
What we've seen historically, isthat poor returns do tend to be
followed by positive returns,and you as long-term investors
(09:29):
are able to buy all of thesebusinesses and their future cash
flows at lower prices, lowervaluations.
So for those that are regularlyinvesting and adding to your
investment accounts, whetherit's through your 401(k)s, your
SIMPLE IRAs, or adding to, RothIRAs or traditional IRAs, maybe
you're adding to taxablebrokerage accounts.
These are opportunities for you,a long-term investor to continue
(09:52):
to buy all of this stuff thatyou want to own for decades on
sale.
Now that's different.
If you are someone who is anactive investor and trying to
hand select individual stocks,individual corporations.
What we're talking about here isthe broad market.
If we're going to experience therisk, we know there's short-term
(10:14):
risk with investments.
If we're going to experience therisk, we might as well stick
around for the eventual hopefulreturn on the other side.
And what we also see is thatmarkets, if we look broader at
the global stock market, marketshave rewarded discipline
historically.
And I'll, I'll try to addanother chart in the show notes
that shows this.
(10:34):
But for all of time we've seenevents that would cause us to
decide not to invest sometimesreally dramatic, really scary
events.
So we've seen two world wars anda great depression.
We've seen global conflicts.
We've seen economic shocks.
We've seen terrorist attacks.
9/11, we've seen The GreatRecession, which is a near
meltdown of the global financialsystem, and we've survived that
(10:59):
by the way, we've seen a globalpandemic.
Yet markets have rewardedlong-term investors that are
patient and that are able tostay the course.
Of course, history isn'tguaranteed to happen in the
future.
We're talking about historicalinformation, right?
So the future is alwaysuncertain.
We know that that's the natureof investing.
(11:20):
We're putting our dollars atrisk or buying risky assets.
So that we can Earn a higherreturn over long periods of time
relative to more conservativeassets like cash, CDs, even
short term government bonds,things like that.
So history is not guaranteed tohappen into the future, but
(11:41):
history is a fantastic way toget reasonable expectations.
And so that's what we're tryingto gauge here.
We're trying to gauge reasonableexpectations around how often
declines happen, roughly howlong they're expected to last,
and what we should do aboutthat.
Again, that short term risk anduncertainty is the price we pay.
(12:02):
The price of admissions, so tospeak, for higher long-term
returns we expect when investingin the stock market all over the
world over more stableinvestments.
As the saying goes, no pain, nopremium.
If we're not willing to take onrisk, we shouldn't expect higher
returns over cash, for example,over government bonds, things
(12:23):
like that, regardless of thecircumstances.
Remember what you're investingin, you're investing in among
the best corporations all overthe world and those best
corporations all over the world.
We would expect them to continueworking, working to sell their
products and services andcontinuing to Earn a profit.
And so with that in mind, we, wecan kind of get the gist that
(12:45):
declines happen on someregularly.
This isn't something we shouldtry to avoid.
This is a normal part ofinvesting for the long term and.
Is this time different?
You, you know, you often hearthe saying, that the most
dangerous word in investing isthis.
Time is different.
Well, the reality is this timeis different every time's
different.
(13:05):
That is the cause of eachdecline, the cause of economic
uncertainty, the causes, causesof recessions are always
different.
The exact context and detailsare always different, but what
isn't different is the fact thatdeclines happen, and we've seen
that with some regularity.
What isn't different is thatthere's crises, that there's
(13:28):
nervous investors, that there'sstuff happening in the world
that cause the profits and cashflows of these businesses to be
more uncertain in the short termwe've seen that declines even
very dramatic declines due toreally serious world events have
happened already.
We have experienced them lookingback through history And so
(13:49):
while they're not always fun togo through.
They aren't something we shouldbe fearful of.
They're something that we shouldbuild into our planning.
We should build into ourexpectations.
And these are things that weshould weather.
And so what are some actionsthat you, optometrist should
take during declines?
What, what are some things weshould do?
there are some reasonable thingsthat we should do.
Number one.
(14:09):
Don't, I'm gonna start with,they don't, don't give into the
temptation to time the swings inmarkets.
Because market swings each day,each month, even year, are
incredibly unpredictable.
There is no expectation that wewill ever make the right
decisions to sell and then tobuy in again at exactly the
right time, you have to timethose two separate decisions
(14:31):
perfectly.
And there's that temptation tosay, okay, I'm gonna sell out
now.
And get back in at the bottom,or I'm gonna sell out now and
I'm gonna get back in whenthings settle down, quote
unquote, whatever, whatever thatreally means.
But, I think the Covid exampleis a really good example to look
back at.
It's something that recentlywe've all sort of experienced
for the most part.
(14:51):
and, and what's interesting isthat the covid decline was
roughly 34% for the US stockmarket, and it lasted about a
month.
It happened quickly, veryquickly, and then ended far more
quickly than most of the otherperiods we've seen before.
I.
The daily ups and downs were asight to behold.
I actually remember, Ipersonally, as a professional, I
(15:14):
don't watch the market each andevery day.
It doesn't mean anything to me.
The daily ups and downs, there'snothing actionable about that.
But during Covid, I rememberdownloading Yahoo Finance and
some of these other apps.
Just so I can watch what clientswere experiencing, I wanted to
feel the daily alerts and theups and downs that we were, we
(15:35):
were going through.
And my goodness, it was a sightto behold.
So for example, if we look backat March, 2020, here are the,
here are some consecutivetrading days, one after another
March 11th, negative five.
Decline.
March 12th, negative 10%decline.
This is a daily drop, right?
So negative 5% drop followedimmediately by a negative 10%
(15:59):
drop.
Then we have a 9% increase, so9% positive day.
Then we have a 12% drop, then a6% positive day, then a 6%
decline.
These are one days afteranother.
From March 12th, we saw a 10%drop in one day.
That was immediately followed bya 9% positive day.
(16:19):
That was the, that was tied forthe highest daily return of that
whole period, and that wasimmediately followed by the
largest 12% decline, the largestdaily decline during that whole
period.
Stock market swings day-to-daycan play with our brains as
we're experiencing them, andthere's no conceivable chance of
timing the right time to selland the right time to buy while
(16:42):
also having the mentalconviction, the mental fortitude
to actually follow through on itwhen things are moving like
that.
And there's a pretty substantialcost to not being invested and
missing out on just a few of thebest days.
of returns and I'll, I'll addanother chart, or at least I'll
link to another chart in theshow notes that talks about, you
look at the S&P 500 returns fora whole period, but how those
(17:06):
returns drop.
If you miss the best one day andthe best five days and the best
15 days and the best 25 days,the more days you start missing
out on, because you miss timethose specific days, the more
and more your returns actuallystart to look like treasury
bills.
Short term government debt.
(17:28):
And so there is a real, sothere's a, there's a pretty
substantial cost to our ownbehavior to, to miss time to
trying to take action and makingthe wrong decisions.
And unfortunately, personallyI've seen firsthand when people
sell and never actually reinvestthe dollars even years later,
always looking for thatopportunity and then realizing
(17:50):
they missed the opportunity.
So then they continue to lookfor the next opportunity and so
on and so forth.
And we can only look back at thedollars lost while sitting in
cash or, or not being invested.
So we cannot give in thattemptation to, to try to take
action and time these swings,these swings will play tricks on
our brain.
And so very often the bestcourse of action is to simply
(18:12):
stay invested.
The next thing we should do isremember our time horizon and
then review that you have theappropriate mix of stocks,
global stocks and cash or bondsand other assets that make sense
for your financial goal.
Remember the goal that you'regonna be investing toward, and
how long are you going to beinvested before you actually
(18:33):
need the money?
Because as we look back again,historically when you look at
really short term periods oftime, like a month or a year.
There is a pretty wide range ofoutcomes, both positive and
negative, and it's reallyunpredictable where returns are
gonna go over a very shortperiod of time.
But as you lengthen a timehorizon, so as, as you look at
(18:54):
five year periods of time, 10year periods of time, 15 year
periods of time, and beyond 20or 30 year periods of time, what
you start to see is that returnsbecome more and more reliably
positive and to a certain pointas you go far enough.
Even though there aren'tsubstantial, there isn't a
substantial data set around 20year or 30 year periods.
(19:17):
What you start to go like 15years and beyond, what you start
to see is that returns areprimarily positive.
Looking back again, depending onthe, the time horizon you're
looking at.
But going back, for example, tothe seventies.
Through 2024, there were nonegative periods of time that
were 20 years or longer.
And so the longer your timehorizon, the more time you have
(19:38):
to go through those declines andthrough the eventual, we hope
will be the recovery on theother side.
The longer your time horizon,the more you're able to lean on
that stock side of the mixrather than the bond side of the
mix.
And so now is a really goodopportunity if you're going
through, times that are makingyou uncomfortable.
It's a good opportunity to sortof.
(19:58):
Check yourself to say, okay, howdo I, you know, what really is
my risk tolerance?
What really is my time horizon?
How much investment risk can Irealistically take financially,
and do I have the appropriatemix of stocks versus bond versus
bonds that's appropriate forwhat your family's investing
toward?
A thoughtful mix of stocks andbonds is going to be really
(20:21):
helpful to weather thesedeclines, weather these storms,
regardless of what stage of, ofyour career you're at, whether
you are about to retire inretirement, or whether you are
continuing to invest and buildassets, that thoughtful mix of
stocks and bonds is reallyimportant.
The next thing we can do isrebalancing, right?
when I talk with clients, we gothrough this big conversation
(20:42):
about education and eventuallywe land at a mix of stocks and
bonds that is appropriate forthe situation.
And so we're targeting, firstly,we're targeting certain
percentage of, of investmentstowards certain categories,
stocks versus bonds, forexample, if there's bonds in the
mix or US stocks versusinternational stocks or large
(21:04):
stocks versus small value versusnot And so we we're targeting
certain characteristics orcertain categories and certain
percentages.
And so what we're balancing isis that.
We're trimming the categories,our investments that are far
higher than we're targeting, andwe're adding those dollars back
to categories that are too low.
And so that's not something youneed to do every day, but you
(21:26):
might wanna look at it at acertain part of the year, for
example, whether it's quarterlyor annually, or you might wanna
look at it as, as I do, as acertain drift away from your
target.
So if you are, so, if certaincategories are, for example, 15
or 20% higher than your target.
Well, that might be a, a triggerto rebalance.
And so what this is, is it'skind of a systematic way of
(21:47):
selling high and buying low.
On a set system without anyemotion.
It, it's just, there'sparticular trigger points that
tell you to do that.
And for many of you, yourongoing deposits to 401(k)s,
your ongoing deposits to otheraccounts are already doing this.
They're, they're already fillingin the holes each and every
month, or each and every payperiod.
But rebalancing is something welook at doing, especially when
(22:10):
there's substantial declines.
That might be something we tryto do.
number two is tax lossharvesting.
And this doesn't make sense foreverybody but.
When you look at taxablenon-retirement accounts, if
you've recently invested dollarsin those funds that you've
invested in, declined for acapital loss, what you might
consider doing is selling thosefunds and then immediately
(22:32):
reinvesting those, those dollarsinto something else that's not
substantially identical.
And there are certain rules toavoid what's called a wash sale.
So I'll put a link into the shownotes that talk more about the
rules around that.
But really all that is, is a taxplanning opportunity.
It's not a market timingopportunity.
This is a tax planningopportunity.
(22:52):
All we're trying to do is takethose capital losses and either
use them to offset other capitalgains from selling other stuff.
Or we can use up to$3,000 of thecapital losses against the rest
of your income like wages orbusiness profit.
And if there's any additionalcapital losses, those extra
losses can be, can be forward,carried forward into future tax
(23:15):
years.
And so that might be a taxplanning opportunity we'll look
at.
The next thing we might thinkabout is Roth conversions.
And so in years that you alreadyknow, it's going to make sense
from a tax standpoint to do Rothconversions.
A decline is a really great timeto do them.
And the reason that is, isbecause you're already planning
to convert a certain amount ofdollars.
(23:36):
Well, when prices decline,you're able to convert the same
amount of dollars.
But more shares, more shares ofmutual funds and more shares of
ETFs.
And that means more shares ofyour investments are now growing
tax free in the Roth account.
So a little fun timing,opportunity there if you already
know from a tax planningopportunity Roth conversions
(23:58):
makes sense.
what else should you consider?
Well.
After those perfectly reasonableactions to take, looking at your
time horizon and reviewing andreviewing your appropriate mix
of stocks and bonds, consideringrebalancing, considering where
it makes sense, tax loss,harvesting, considering Roth
conversions, after you take someof those reasonable actions, the
(24:20):
next best thing to do is to donothing.
Very often.
The best action is simply to donothing and stay invested based
on the long-term investment planyou put together.
Go for a walk, have a cup ofcoffee, turn the TV off, turn
your phone on airplane mode.
Go talk with friends and familyand just enjoy life.
(24:41):
Focus primarily on the thingsthat are directly within your
control.
That is improving your skills asan optometrist, as a
practitioner, and improving yourpractice.
Those are the things that arewithin your control and that are
gonna have the biggest benefiton your income potential, your
cash flow, and your ability toreinvest those dollars into
(25:02):
other assets.
And so focus on those things youhave the most control over.
Otherwise, please do not look atthis stuff every single day.
It is very likely not going tobenefit you to doing that.
It's very likely to simply add amore stress to your life and
look at these things with awider perspective, with a longer
perspective, especially aperspective that matches your
(25:25):
time horizon.
We're talking from theperspective of a long-term
investor, primarily aimingtowards financial independence,
long-term retirement.
If you're planning to invest fora goal that's next year or in a
couple years from now, wellthat's a different conversation.
That's really where thatappropriate mix of stocks,
bonds, and cash and other thingsis really important.
(25:46):
You wanna match your investmentmix to your time horizon.
And so, hopefully this ishelpful.
Again, we, we see a lot of thesescary headlines.
I, I try to provide a, a longerterm perspective, more context
historical data.
I think looking through that ishelpful, even if it doesn't make
it less uncomfortable.
At least it helps you to, to geteducated around how often these
(26:09):
things happen.
And, and what that really meansfor you.
And if you have any questions,please reach out.
You can reach out to, topodcast@optometrywealth.Com.
If you'd like to talk about howto improve your own investments,
what these declines mean foryou, and your investment goals,
and your cashflow and yourretirement planning, reach out
to me.
There are so many opportunitiesto improve investments.
(26:31):
You know, in a, in a lot of waysinvesting is solved because you
can very easily invest sobroadly, so inexpensively and,
and with very little funds,things can be simple.
But, but there are still plentyof opportunities to improve our
investments, and I've seen someexamples lately where, new
clients had way too manyaccounts and needed badly to
(26:53):
consolidate to be able to managethese accounts more, more
easily.
we've seen where there are,where there are, primarily with
large financial institution,institutions, whether in each
account there are, you know, 10to 20 different funds.
All really expensive, activelymanaged funds where we can
simplify and, create a much morecost effective and improved
(27:15):
portfolio with a lot less funds.
we've seen opportunities wheretaxable investment accounts had
really tax inefficient funds.
a lot of active managed fundsthat the categories that were in
these accounts, the type offunds didn't match the type of
accounts they were in.
And so there are a lot ofopportunities to.
To improve the investments.
Please reach out if you havequestions.
(27:36):
Or if you have other questionsyou'd like to see on the
podcast, would love to see that.
And if you'd like to learn more,you can check out our weekly
Eyes On The Money Newsletter.
I'm writing about this, aboutstudent loans, about, practice
finances and how that impactsyour, your, your household
cashflow.
I'm writing about all of thesefun topics each and every week.
so if you wanna learn more, ifyou wanna follow along, you can
(27:57):
subscribe at the link in theshow notes and we will catch you
on the next episode.
In the meantime, take care.
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