SRI investors, like virtually all investors, know that over time markets go up and markets go down. When they go up for an extended period of time we call it a bull market – vice versa, it’s a bear market. Well, we’ve had a bull market now for a very extended period of time, more than 7 ½ years. Eventually, a bear market will follow. We know that. We just don’t know when and how severe it could be.
I happen to believe in some unsubstantiated investment “street” wisdom – that more money has been lost trying to avoid market “corrections” and bear markets than has been lost in the events themselves. If that wisdom is true, it is for a simple reason. Investors who bail out of their stock holdings while predicting (i.e. guessing, following a hunch or a chart) a market downturn are very often wrong about the timing. After they pull out, the market continues to go up for a substantial period of time – they miss out on the upside in their anticipation of the downside.
Of course, if we’ve continued holding our stocks when the market does turn south – well, it doesn’t feel good watching your diminishing portfolio. And bear markets don’t spare SRI portfolio holdings just because we think they are sustainable, responsible, or create impact. Both “good” companies and “bad” companies participate when economies go into their periodic recessions and the market follows suit.
Smart investors and their advisors know how to manage these market ups and downs. First, the good news is that the market is indeed cyclical, meaning that what goes down also comes back up, sooner or later. And, quoting another piece of investor wisdom, while markets often go down faster than they go up, they have always gone up more than they’ve gone down. Past performance never guarantees future results, but look at any graph of stock market index performance from, say, the beginning of the 20th century until now. Despite all cyclical setbacks (including the worst - 1929 and 2009) the longer movement has been upward for more than 100 years. Professional, periodic rebalancing of portfolios to maintain a more or less steady asset allocation helps to enhance this trend. And saving more, in any scenario, is always a good thing.
Making money in the stock market almost always requires investors to have diversified portfolios representing successful companies - invested for the long term so they are not caught short having to liquidate their holdings in a down cycle. This is more of an issue for older investors who are gradually liquidating their portfolios to maintain a comfortable retirement. It makes sense for these investors to have flexible distribution plans if possible, taking larger distributions during bull markets and smaller distributions during bear markets to help sustain the portfolio over time.
A bear market is most definitely coming. You heard it here. But with your professionally managed SRI portfolio and the maintaining of a long-term perspective and plan, your portfolio will most likely continue to grow, regardless, well into the future.