October 2018 - Glass Half-Full? It is Refillable.

David L. Johanson |


  • Proper Asset Allocation is critical for long term investing.
  • Buying stock on the “worst day”’ can take up to three years to normalize.


It's interesting.  Decades ago, when workers retired after a long career from Westinghouse, IBM, Lockheed, or other company, they left with the hopes of a steady pension.  Workers didn't worry much about their decision making.  Their pension coupled with social security was to provide safety.

Today, most workers are left to their own devises to save on their own.  Pensions are rare. They are ever more reliant on their own decision making, investment acumen, and living prudently off of what they saved.

Workers today should be more concerned than ever about their retirement assets and longevity issues.

  • How much money do I need to save for retirement to maintain my lifestyle?
  • How much income can I generate?
  • What is the optimal asset allocation to provide that income?

At Johanson Financial Advisors (JFA), we take great pride in easing that burden, but we sense the worry factor for retiring Baby Boomers has been elevated.  The stock market setbacks of 2000 and 2008 did not help the hand-wringing.

After a great 9 1/2 year bull market where the S&P 500 has gain 429% (total return) - should we be worried?  Yes, but not entirely.  Let me explain...

Investing is a long term process.  We must think long term and not worry about the hiccups.  The brilliant, Warren Buffet said, "Nobody buys a farm based on whether they think it's going to rain next year.  They buy if because they think it is a good investment over 10-20 years."  

Since the bull market began on March 10, 2009, the market has thrived, but it has also tumbled 11 separate times by at least 5%.  The most recent drop came in February 2018 where the market dipped 10% over 13 calendar days.  We hardly remember that now.  We'll get more turbulence for sure, but we can handle that.

At some point, this economy will fall into recession and a bear market.  We don't see it now, but we anticipate it as the economy always ebbs and flows.  We will see a bear market at some point.  Our advice is to try and ignore the hurricanes whether it is Hurricane Florence or economic Hurricane Washington, D.C. and look past the short term issues.

A sensible Asset Allocation strategy designed for your specific situation, income needs, and growth objectives is the safest way to long term success.

History Lesson

The S&P 500 peaked on October 9, 2007 before beginning a 17 month bear market that saw the index fall 57% before bottoming on March 9, 2009.  The worst stock market decline in most of our lifetimes.  That is history.

An investment in the S&P 500 on October 9, 2007 (the worst possible day) until the end of last quarter September 30, 2018, you would have returned 137% for an annualized return of 8.2% a year.  Not bad…

The worst possible "Rambo" nightmare would be to invest at the start of a downswing.  In nearly 90 years of market history, if you bought stocks on the worst possible day, it took an average of three years to return to normality.  Three years go by quickly.  If you'll recall three years ago, Donald Trump started campaigning, Bruce Jenner became Caitlyn, the Pope visited the United States, and the Warriors won the NBA Championship.

Looking Forward

This is an older expansion, yet we are still bullish on stocks.  This should be the third quarter in a row of operating earnings in the mid 20's.  Quarterly earnings comparisons should look great the next several weeks.  2019 earnings comparisons might be harder.

Keying your investment decisions off of politics is going to be a losing proposition.  I spent a lot of Obama's administration reassuring Republicans, and now I take time reassuring Democrats that the world is not coming to an end.

I am sure it will be an interesting fourth quarter with the mid-term elections, but we are more focused on corporate earnings and how workers are feeling.  The last quarter of each year, the S&P 500 has gained an average of 5% (total return) during the optimistic holiday season.

So yes, investors are always concerned as the market climbs that proverbial wall of worry.  Yet, the economic glass appears to be half-full.  Even if it's not, it is refillable.

Have a wonderful Fall season.  I am sure we will talk with many of you this quarter.  As always, wishing you all the best!