Stock market recovery likely will be years in the making
NEW YORK -- Investors who are still card-carrying members of the buy-and-hold club are no doubt wondering how long it will take stocks — once they stop falling — to regain their hefty losses.
The answer: probably longer than the 18 months it took for the Standard & Poor's 500 index to plunge 56.3%.
If there is a silver lining to the pain being inflicted by the current bear market, it is the knowledge that the stock market fully recovered from its worst fall ever: an 89% drop during the Great Depression. Of course, it took 25 years for the market to climb back to its prior peak.
Will today's investors have to wait that long? Using Friday's close of 683 on the S&P 500, it would take the market benchmark eight years to climb back to its October 2007 peak of 1565, assuming annual returns of 10%, the long-term average, Bespoke Investment Group says.
And for investors who are thinking of bailing out of stocks for good, it would take 28 years to get even if they flee to long-term Treasury notes at the current annual yield of 2.88%.
Wealth advisers say it's counterproductive to get too caught up in get-back-to-even scenarios. They say investors' time would be better spent revisiting their financial plan and reassessing the type of lifestyle they will be able to craft going forward.
"It is important for investors to understand the magnitude of the damage and to be realistic in terms of the time frame for recovery," says Tony Ogorek, an investment adviser at Ogorek Wealth Management.
"It is more comforting to have a plan," adds Ogorek, who believes this market period will be viewed in hindsight as a temporary, yet big, setback.
The average trough-to-peak recovery period after bear markets is 3.3 years, InvesTech Research says.
The big question is if it makes sense for squeamish investors to bail out now — with stocks down almost 60%.
There are two answers, says Kurt Brouwer of wealth management firm Brouwer & Janachowski: "One is emotional; one is objective."
