The S&P 500 has had a great run…prior to August. Over the past two years, it’s taken the elevator up, rising more than 50% from its October 2022 lows.

If the year ended on July 31st, investors would celebrate a terrific 2024, with the S&P 500 up 16% through the first seven months. But alas, baseball teams don’t get wins after 5 innings, and investors can’t count yearly gains in July. 

This was painfully evident as stocks fell by 6% in the first three days of August on the heels of disappointing economic data. Losing 6% never feels good but to do so in such a short timeframe on the heels of so many new market highs this year left investors feeling a bit shell-shocked. It’s an important reminder that investor reality, like the weather, can be very subjective.

Choose Your Hard 

Sudden downturns can shake your confidence in a long-term investment strategy. Market storms don’t feel good, especially after the clear skies and record highs in recent months. During tough times like these, I’m reminded of a quote I found during my divorce that’s become a guiding principle for me:

• Marriage is hard. Divorce is hard.
• Obesity is hard. Being fit is hard.
• Being in debt is hard. Being financially disciplined is hard.
• Communication is hard. Not communicating is hard.
• As I shared in my 12 lessons from losing my job last week, being employed is hard. Being unemployed is hard.
• Choose your hard.

Choose Your “Investment” Hard 

Over the past 15 years, cash has earned an average annualized return of 0.8% – and no, that’s not a typo. Meanwhile, stocks have gained 14% per year.¹

Taking no risk in cash investments over the past 15 years would make achieving your financial goals really hard. Alternatively, stomaching the stock market volatility of periods such as the Great Recession, the Covid pandemic, and the first few days of August is hard too.

Fortunately, you can choose your hard. And remember, swerving to avoid the next recession isn’t a strategy I would recommend.

Cash Isn’t King 

Sure, cash is paying much higher rates right now than it has in the past 15 years, but if history is any guide, investors shouldn’t bank on that lasting. The Fed is expected to cut rates next month for the first time in four years, up to a full percent before year-end.

As you’ve probably heard, panic is not an investment strategy. In fact, it can be damaging because some of the best market days often follow the worst, as we saw last week when stocks turned on a dime to recover half of their early August losses.

Volatility tends to breed more volatility, so investors would be wise to buckle up. At the same time, any long car ride is bound to have its fair share of bumps along the way, and the investing journey is no different.

Life – and investing – will never be easy. It will always be hard. But we can choose our hard. Choose wisely. 

Source: ¹ JP Morgan Guide to the Markets

Castle Quote: “How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.” – Robert Allen