We did it folks!
Last Friday, the S&P 500 closed at a new record high of ~4,840 points for the first time in over two years!
On Wall Street, there are two main benchmarks for determining a new “bull market.”
The first benchmark is when the S&P 500 is up 20%+ from its most recent low, which happened back in June 2023 when the market was 20%+ higher than its low in October 2022.
The second benchmark is harder to hit: the S&P 500 has to surpass its previous record high.
On January 19th the market did just that! So we officially kick off 2024 with a new bull market!
With the stock market at a record high, inflation moderating to ~3% from its ~9% peak in 2022, employment numbers still strong, and Fed interest rate cuts on the horizon, we’ve come a long way since the start of 2020.
Bring on the good times!
UPDATE: As of February 2024, the S&P is now above 5,000 for the first time in history!
The Market’s Roller Coaster Ride
The past few years since 2020 have been a roller coaster ride in the stock market, not only the magnitude of the losses and gains but also the remarkable speed at which it all happened.
The Coronavirus crash in March 2020 caused the S&P 500 to plunge by ~34% to a low of ~2,237 points.
An epic rebound followed and the S&P 500 more than doubled over the next 21+ months to its last record high of ~4,839 in early January 2022, fueled by low interest rates, Coronavirus stimulus payments, and strong consumer spending.
All was well in the stock market until war broke out in Europe, followed by the highest inflation in over 4 decades that caused the Fed to hike interest rates through the roof, causing the S&P 500 to fall plunge by ~25% to ~3,577 at its bottom in October 2022.
Despite all these major events and the volatility in the markets over the last few years, sitting here in January 2024 the market is up an incredible ~50% overall since the start of 2020!
If you’ve managed to stay in the game throughout this whole time, diligently hit your target investing rate, and let your money system and long-term investment strategy do all the heavy lifting, you are likely far richer than you were just a few years ago.
It’s been a thrilling ride, but investors have made it out the other side richer than ever!
Take Advantage Of Stock Market Crashes
The opposite of a bull market is a bear market, or a period of decline in the stock market that causes it to drop at least 20%+ from its high.
“The intelligent investor dreads a bull market since it makes stocks more costly to buy. And conversely (so long as you keep enough cash on hand to meet your spending needs), you should welcome a bear market, since it puts stocks back on sale.”
Benjamin Graham, The Intelligent Investor
If you are a young (or young-ish) investor with strong cash flows to put towards investments, you should welcome stock market crashes!
A bear market is your chance to aggressively buy ownership in great companies at much cheaper prices than before. Think about it as a 10%, 20%, or even 50% sale on the entire stock market!
Any money you invested at the end of March 2020, during the lows of the Coronavirus stock market crash, would have more than doubled today.
The key to weathering bad economic times is having cash flow (i.e. money coming in to pay your bills). As long as can cover your cost of living, you never have to sell your investments and can even buy more investments when they go on sale!
An emergency fund is overrated, cash flow is king. You don’t need a giant lump of cash sitting on the sidelines losing money every year due to inflation when it could be earning you money.
Having multiple income streams and maintaining strong cash flows can help you weather any financial storm and make you richer in the process.
Play The Long Game
Over the past 40 years, here are the major crashes and the magnitude of the decline for the S&P 500:
- 1987 Black Monday crash (29% decline)
- 2000 Dot-Com Bubble crash (49% decline)
- 2008 Financial Crisis (57% decline)
- 2020 Coronavirus crash (34% decline)
Can you spot them below? Those little dips that seem almost irrelevant now?
With the benefit of hindsight, we can learn two important lessons from these past crashes that will make us richer in the long run:
1) Stock market crashes should be expected. They will happen again.
2) The stock market will recover. Stay in the game.
The Coronavirus crash in 2020 was caused by a black swan event that could not have been predicted. But it’s not anything new. We’ve seen bigger crashes in the market like the 2008 Financial Crisis.
While we can’t predict them, we should expect market crashes to happen again and again for the rest of our investing lives.
As we’ve seen time and time again after every crash, the US stock market recovers and reaches new highs as businesses relentlessly increase their productivity and come up with new innovations that drive overall profitability and valuation in the stock market.
This is by far the most important lesson we can learn.
How long it takes the market to recover is impossible to tell (the 2020 crash took just 117 trading days to fully recover its losses), but we should expect that the ride upward is never smooth.
At the end of the day when you’re investing in stocks, you’re getting a higher return for taking on more risk and volatility.
The key to winning is a long-term investing strategy that you stick to regardless of what happens in the market. Don’t panic sell at the first sight of trouble.
If you went back in time to the start of 1987 before the Black Monday crash and made a $100,000 investment in the S&P 500, held on for the next ~37 years throughout 4 major market crashes (1987, 2000, 2008, and 2020) in the future, you would end up with ~$4 million today!
That’s a whopping ~40x total return or a ~10.34% annual return (~7.4% inflation-adjusted) on your initial investment despite experiencing crashes that will wipe out half of your investment portfolio at one point!
Anyone can get lucky and make money off short-term bets when the market is rising. As the saying goes “a rising tide lifts all boats.”
But what determines whether you will become wealthy from investing in the stock market over the long run and live a fat retirement lifestyle is what you decide to do during collapses in the market.
The 80/20% move to being a great stock market investor is to invest in low-cost index funds and stay invested for as long as possible while investing more using your excess cash flow, especially during market crashes when everything is on sale.
Successfully Time The Market By Dollar Cost Averaging
Alright, nobody can time the market perfectly. I can guarantee that.
Nobody on Wall Street, nobody in the news, and especially not your neighbor who thinks that he’s going to retire off forex and options trading.
Financial media gurus pretending they can predict the market are just fooling you into watching them for more views. Remember, they get paid millions based on their viewership, not on their investment performance!
S&P 500 Inflation-Adjusted Returns Since 1930
Source: Bank of America
Take a look above. If you miss out on just a few good days in the market every decade, your investment return becomes abysmal… a 17,515% return for 90+ years becomes just 28%.
Don’t try to time the market. Remember: Time in the market beats timing the market.
There’s only one strategy to successfully “time the market” and that’s dollar-cost averaging. It’s simple. All you have to do is continuously buy low-cost index funds regardless of what the market is doing and regardless of price.
This means constantly buying the lows, the highs, and everything in between to average out your purchase price and maximize the time your money can grow in the market. Because the market goes up more than it goes down, your expected returns will always be higher investing earlier rather than later.
Get the thought of being able to perfectly time the high and low points of the market out of your mind. Remember just missing a few good days in the market can kill your returns.
Thankfully, you can set up your money system to automatically dollar-cost average your investments so it doesn’t take any effort on your part besides setting it up.
To summarize: put your money to work as soon as possible and stay invested for as long as possible regardless of what happens in the markets. At the same time, use your income potential from your career, business, and other cash-flowing ventures to grow your investment portfolio. During market declines, snap up more ownership of the US economy at Black Friday sale prices!
That’s your golden investment strategy.
At the end of the day, nobody knows how long this new 2024 bull market will last and what will cause the next major crash. All you can do is ride the stock market wave and get rich along the way.