Topic 9 – Dow Jones Historical Trends

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So we just spent some more time talking about sequence risk and market trends, market trend analysis, and some of the market returns in recent years. And we also looked at how the effects of draw-down or bad market performance can affect an income plan in retirement. Let’s talk a little bit more about historical trends in the U S marketplace, especially with respect to the stock market. In this slide, we look at the Dow Jones industrial average. The Dow Jones industrial average is a benchmark index. It measures the performance of 30 stocks. Now these 30 stocks, over their history of the Dow Jones, industrial average benchmark index have had periods of positive growth, and then they’ve had some flat periods also. The positive growth years are known as a bull market. Markets are going up and they’re bullheaded. They’re going forward. Going fast. You also have periods known as bear markets, which are the flat markets.

And when we see long periods of stock market ups and downs, those are called secular bears and bulls. In this particular chart, we see the history of the Dow Jones industrial average over about a 40 to 50 year period. We look at this chart based on a long period of market performance, starting out in about 1900, and moving forward all the way up through 2018. Now, if we extended this chart past the point of where we are in 2018, we would see the market continue to go up, and we reached this bull market period where the market has gone up almost as much as the last long-term secular bull. The last longterm secular bull ran from 1983 to about 1999. And then we see that flat period, that bear period in purple. We see two major market downturns, the 2000 2001, 2002 .com bubble popped and we lost about 50% of our value in the Dow.

The second market decline occurred as the financial market meltdown of 2007 to 2009. During that period, we saw another 50% loss. So we saw volatility in extreme fashion during this time period of 2000, through 2010. We saw basically a lost decade. We saw high gains and then we saw tremendous losses. Now we’re in a period where we’ve been in another secular bull period. Going up into 2020, we saw the market was on a tear. There were some down periods, and then there was also some ups. In typical market cycles about every three and a half months, we’re going to see a correction of about 5%. And about every 18 months, we’re going to see the market correct about 10%. These are typically noise. In today’s society, they could be another angry tweaked by our president, or they could be some breakdown in some trade talks with other world powers. The market bases it’s performance based on economic indicators, but it is not a direct reflection of the economy of the United States.

These are two separate factors. And when we look at performance of this Dow chart, we need to keep in consideration that if we have I have a poor sequence of returns in our early retirement red zone period, the five years before retirement begins, or the first five years after retirement starts, a total span of 10 years. So if we see that we have the potential for a market decline, we need to pay close attention on why our assets should be earmarked for safer investments with guarantees for at least a portion of our assets that are going to guarantee our income is meeting our expenses, and we have have a proper income allocation formula in place.