The Roaring 2020s: Navigating the Historic Bull Market
We find ourselves in the midst of a remarkable era, reminiscent of the 1982–2000 bull market, where annual returns reached an astonishing 20%. The current market, fueled by global chaos and unprecedented challenges, is on a similar trajectory. It's a time when the stock market seems to defy gravity, rising faster than sea levels.
What's fascinating is that despite the turmoil, Canadian and U.S. equity benchmarks have soared by 140% since 2019. This bull market, now in its 18th year, has been a golden opportunity for investors, with the S&P 500 averaging 17% annual returns. However, the average Canadian investor has missed out on much of these gains, often due to poor investment choices and fear-driven decisions.
Personally, I believe that fear is the enemy of long-term investment success. While the world may seem scary, with pandemics, supply chain crises, and geopolitical tensions, a booming stock market offers a unique opportunity. Investors should not let fear prevent them from participating in this historic bull run.
Lean In, Don't Bail Out
The past six years have presented numerous reasons to doubt the market's resilience: a devastating pandemic, global supply chain disruptions, rampant inflation, and energy crises. Yet, these challenges have become catalysts for growth. Many investors, unable to stomach the volatility, have missed out on significant opportunities.
Research by Dalbar reveals that the average American equity-fund investor has sacrificed a substantial portion of potential gains due to fear and poor timing. This 'missed opportunity' phenomenon is a critical lesson for retail investors. It's not about taking reckless risks but about having the courage to stay the course during turbulent times.
Embrace Passivity, Ignore the Noise
One effective strategy is to adopt a passive investment approach. Instead of trying to time the market or pick individual stocks, investors can plow their money into major index funds like the Vanguard S&P 500 ETF (VOO) or the iShares Core Equity ETF Portfolio. This 'VOO and chill' strategy minimizes fees and market noise, allowing investors to capture the bull market's gains over the long term.
This approach is particularly appealing to those with a long-term horizon, as it leverages the power of compounding. While others debate market timing, passive investors let their investments grow steadily.
Surprisingly, few Canadian investors embrace this passive strategy, with only 23% of the market share in passively managed funds. Most investors opt for actively managed funds, despite the higher fees and the likelihood of underperformance.
Sell-Offs: A Necessary Evil
Bull markets are not without their scares. Since 2009, the S&P/TSX Composite Index has experienced at least eight major sell-offs, each triggering panic. However, these corrections are the price of admission for long-term investors. Those who endure these moments of fear are often rewarded handsomely, while those who panic face the daunting task of deciding when to re-enter the market.
Record-highs, contrary to popular belief, are not a reason to stay away. Research indicates that money invested at market peaks performs just as well over time as money invested during other periods. Staying out of the market altogether is a missed opportunity.
In my view, this bull market is a testament to the resilience of the global economy. It's a time when investors should lean in, embrace passive strategies, and let their investments ride the wave of this historic market. Fear and hesitation may cost you more than you realize.
