• The Morningstar Chart That Busts 3 Stock Market Myths
• Eric Nelson on Bull vs. Bear Markets
• 1929: Inside the Greatest Crash in Wall Street History

Retirement Investing asks you to live with uncertainty. You don’t know what the markets will do next year. You don’t know when the next bear market will arrive. And you certainly don’t know whether today’s headlines are meaningful or just noise. What we do know is this, strong market rallies make people uneasy.

When stocks rise quickly or get close to new record highs, it’s natural to assume something must be different this time. That the rally is unusual, that the bull market is getting old, that one bad downturn could undo decades of savings. Those beliefs feel reasonable, they’re repeated often, and for someone approaching or living in retirement, they can easily influence major decisions.

Recently, Jeff Patack at Morningstar published a great piece around a fascinating chart mapping nearly 100 years of US stock market history. When you step back and look at that long arc of expansions, downturns and recoveries, a few widely accepted ideas about the markets and investing start to look less solid. That’s what I want to dig into today.

In this episode, I’m breaking down the three common market myths Jeff’s article explores. I’m also sharing what the data actually tells us about bear markets, and what’s far more likely to derail your retirement than a crash.

Not to predict the future or eliminate risk entirely, but to help you think more clearly about the environment we’re in, and how it fits into a disciplined, long-term retirement plan.

Welcome to another episode of the Stay Wealthy Retirement Show. I’m your host, Taylor Schulte, and every week, I tackle the most important financial topics to help you stay wealthy in retirement. And now, on to the episode.

Before we get into the myths, let me quickly describe the chart that Jeff is referencing in his article. The chart maps US stock market history going all the way back to 1926, and color codes three distinct phases. Expansions, downturns and recoveries. Expansions are the periods that begin immediately after the market climbs back to a previous high. Downturns are times when the market falls 20% or more from its last high.

And recoveries are the periods between a market low and the date it climbed back to where it was before the decline. In the chart, each phase is labeled with its duration, i.e. how long it lasted. And for expansions and declines, the cumulative total return is shown as well. It’s a great chart, and it’s just one of those visuals that I think immediately makes you a smarter investor just by looking at it. It’s clean, it’s simple, and it forces you to zoom out. And when you zoom out, three common beliefs about the current state of the markets start to look less convincing, and Jeff does a great job pulling out the key lessons from each one.

I’ve linked to the full article and chart in today’s show notes, so you can see it for yourself, which you can view by going to youstaywealthy.com/270.

Why a Stock Market Crash Won’t Ruin Your Retirement (and What Actually Will)

Okay, let’s start with the first myth. Myth number one. This rally has been unusually strong. If you’ve been paying attention to the financial media over the last couple of years, you’ve probably heard some version of this. Stocks are up too much, too fast. This can’t continue.

The market is overheated. And I get it, when you see back to back years of strong returns, it’s natural to feel like something has to give. But as Jeff points out, the data tells a different story.

Specifically, since 1926, there have been 11 total market expansions. The average expansion, prior to the current one that we’re in right now, the average expansion lasted just shy of 6 years. The longest expansion stretched over 12 years.

It began in late 1949 and ran through the end of 1961. And it’s often cited by market historians as one of the greatest secular bull markets in American history.

As Jeff highlights in his article, during all prior expansions, the market more than tripled in value on average, delivering roughly a 21% annual return. Now compare that to where we are today.

As of this recording, the current expansion is only in its 27th month, just over 2 years. That’s less than half the historical average of 6 years.

And the market’s annual return during this stretch has been right around 21%, which is essentially in line with what we’ve seen in past expansions. Said another way, this rally is not the unprecedented outlier that many think it is.

It’s actually tracking right along with the historical norm. Even if you zoom out a bit further and measure from the September 2022 market low, which is what most people think of as the start of this bull run, the numbers still don’t scream unusual.

The market has risen roughly 93% from that low, resulting in about a 22.5 average annual gain, just slightly higher than the historical average of 21% during prior recovery and expansion periods.

So, the narrative that this rally is somehow abnormal or unsustainable based on its magnitude alone just doesn’t hold up when you compare it against nearly a century of market data.

Now, that of course does not guarantee that a catastrophic drawdown is not right around the corner. It absolutely could be.

The point here is that the strength of this rally is not, on its own, a reason to panic or make reactive, drastic changes to your investment plan.

And I say that because when we label market performance as unusual, it increases our temptation to act, to halt contributions to our retirement accounts, to quickly change investment strategies, to sell and move to cash.

Jeff’s historical context certainly doesn’t eliminate risk, and it doesn’t help us predict the future, but it does help remove the illusion that today is unprecedented.

Okay, moving on to the next myth. Myth number two, this bull market is long in the tooth. This one comes up a lot in both my personal and professional conversations.

I’m sure it’s come up in many of yours, and it addresses the idea that this current bull market is old. As I just mentioned a minute ago, it’s now been over three years since the US stock market bottomed in September of 2022.

People read that stat or catch it in a news clip and think, well, we must be due for a downturn. The good times cannot last forever. And while that last part is true, the good times will inevitably get disrupted, at least temporarily.

The assumption that three years is a long time for a bull market is way off.

As Jeff points out in his analysis, if you just look at the average recovery period in isolation, meaning the time it takes for the market to climb back to a prior high after a downturn, just the average recovery period on its own has historically

lasted almost exactly three years. The quickest recovery was just four months, which was the sharp snapback after the COVID crash in early 2020. The longest took over 12 years during the recovery from the Great Depression.

So when you combine the average recovery time period with the average expansion, you’re looking at roughly nine years on average from a market low to the next high.

By that historical measure, as Jeff highlights, this bull market is far from long in the tooth. Now I want to pause here for a second because I know what some of you might be thinking.

Taylor, are you saying that stocks are just going to keep going up and I shouldn’t worry right now? Yes, that’s exactly what I’m saying. See how easy this can be?

I’m kidding. No, that’s not what I’m saying. I’m not saying that stocks will simply keep going up.

And that’s not what Jeff is saying either. What I think we both agree on is that making investment decisions based on a gut feeling that the market has been going up for too long and it just can’t continue is not a sound strategy.

History shows us that bull markets can and often do last much longer than people expect. The better approach is to ignore the noise and stay focused on your unique goals, your plan, and the things that you can control.

Don’t let a news clip that you saw on Instagram or recency bias or fear of an inevitable downturn drive you to make near-term changes that your long-term plan doesn’t call for.

Okay, let’s get to the third myth, and this is the one that I think is most important for retirement savers, which is that it just takes one bad bear market to ruin everything.

This is the fear that keeps a lot of retirees and near retirees up at night. The idea that one nasty crash could wipe out years of progress and destroy your retirement plan. And look, I’m not going to sugar coat it.

Bear markets are painful. They are real, and they can absolutely do damage in the short term. The 2008 financial crisis is the perfect example.

Heading into October of 2007, US stocks had delivered a solid 8.5% average annual return over the prior decade. But just a couple of years later, investors were staring at what is often referred to as a lost decade.

Those gains have been wiped out, and even with dividends reinvested, total returns over that 10-year period had fallen into negative territory.

That kind of experience can absolutely destroy your confidence as a retirement saver and trick you into believing that the next big downturn is always right around the corner.

But here’s what the chart so beautifully illustrates, and one of the reasons I felt so compelled to publish today’s episode. Over the past century, over the last 100 years, the market has spent about 142 total months in bear market territory.

It’s spent another 349 months working its way back to prior highs. If you add those together, roughly 40% of market history has been spent either falling from or climbing back to previous peaks.

I’ll say that again, add those together, and roughly 40% of market history has been spent either falling from or climbing back to previous peaks.

If you exclude the Great Depression era, which many often do because it’s considered an outlier, it’s still around 31%.

And yet, despite all of this, despite all those setbacks and scary headlines and painful drawdowns and uncertain time periods, the market has compounded wealth for long-term investors over and over again.

As Jeff Wisely puts it, the US stock market’s long-term success has never been a story of uninterrupted progress. It’s been a story of resilience amid setbacks.

That comment is not only incredibly well-framed, but it’s also incredibly important for retirement savers to internalize, because the question is not whether the market will experience another downturn. We all know it will.

The question is whether your plan is built to withstand it.

Now, I do want to acknowledge something important here, especially for those of you who are already retired or within, let’s say, five years of retirement.

While the long-term data is incredibly reassuring, the timing of a downturn relative to when you start taking withdrawals from your portfolio matters a great deal.

This is what’s known as sequence of returns risk, and it’s one of the biggest threats to a retirement plan.

Two retirees can own the same portfolio with the same long-term average return, yet the one who suffers a major downturn early in retirement can end up in a dramatically worse position because they’re forced to sell more of their investments at lower

prices to fund withdrawals. This is precisely why I advocate for ensuring that you have the right asset allocation, especially in the three to five years before retirement and the first few years on the other side of it.

It’s also why I advocate for a flexible, guardrails-based spending strategy that adjusts as markets move. It’s not enough to know that markets will recover over time.

You need a plan that ensures you don’t have to sell stocks at the worst possible moment to pay for basic living expenses or an upcoming tax bill or even your dream African safari that you’ve worked so hard to plan and save for.

So I don’t want anyone walking away from today’s episode thinking that the historical data means you can just set it and forget it. The data is encouraging, but it needs to be paired with a disciplined, well-structured retirement plan.

And to build on what I’ve already touched on, this means having a properly diversified portfolio across multiple asset classes that are proven to complement each other.

It means maintaining a war chest of cash and short-term bonds to cover near-term expenses over the next, let’s say, two to three years so that you’re not forced to sell stocks in a down market.

It means having an investment policy statement that documents your strategy and your response plan for when markets get ugly so you don’t get caught up in the emotions and headlines and make irrational changes.

As Jeff highlights, there’s nothing wrong with preparing for periodic adversity. In fact, you need to prepare for it. But the argument that stocks are just one nasty downturn away from complete failure doesn’t hold up based on market history.

And that last point is one that I really want to drive home. The fear of a catastrophic, unrecoverable market crash is understandable. But that fear, if not managed properly, can quickly lead very smart people to make some very costly mistakes.

As colleague Eric Nelson recently put it, it’s not that you can’t afford to lose money in down markets, it’s that you can’t afford to miss any of the gains during the much longer lasting up markets.

And that brings us to what I think is the most important takeaway from today’s episode. If 100 years of market data tells us that a crash alone won’t ruin your retirement, then what will? In short, the answer is not a bear market.

It’s what you do when one shows up. It’s halting contributions because the headlines are scary. It’s moving to cash and waiting for things to settle down.

It’s trying to time your way back in and missing the recovery. It’s buying expensive products that promise downside protection while quietly eating away at your long-term returns.

And maybe the most overlooked one of all, it’s being so afraid of the next downturn that you never actually enjoy the money you work so hard to save.

I’ve said this many times on the show, that the greatest risk in retirement is not overspending, it’s underspending.

And the fear that this rally is too strong or that a crash is right around the corner is one of the biggest reasons retirees sit on their savings and never give themselves permission to spend.

They skip the trip, they put off the kitchen renovation, they say no to experiences with their grandkids. Not because the math says they can’t afford it, but because they’re terrified that the next downturn could take it all away.

Jeff’s research should hopefully provide some comfort here.

The market’s long-term track record is not one of fragility, it’s one of resilience, and if your plan is properly built with the right guardrails in place, you should feel confident spending the money you’ve worked decades to save, not guilty about

it. If today’s episode has you thinking about your own plan and whether it’s built to handle what markets throw at you while still giving you the freedom to enjoy your retirement, I just want you to know that’s exactly the kind of work my team and I

do every single day. We help retirement savers connect their investment strategy to their tax plan, their cash flow and their long-term goals so that every piece is working together, not in isolation.

If you’d like a second pair of eyes on your plan, you can watch a video of me explaining our process and schedule a free retirement strategy session by following the link in the episode description right there in your podcast app.

Whether you work with a retirement planning firm like ours or enjoy navigating retirement on your own, Morningstar’s articles or beautiful charts aren’t going to accurately tell any of us what the market will do over the next year, five years, or

even ten years. Nobody can. What historical data like this does is provide context, and I believe that context can help all of us make more informed, less emotional decisions about our money, our investments and our retirement plans.

And that’s really the objective.

Whether it’s studying long-term capital markets assumptions, learning from historical charts, or diving into financial history through books like Andrew Sorkin’s 1929, the goal is to develop a realistic range of possible outcomes, pressure test your

plan against them, and adopt the guardrails you need to stick with it. Because the biggest risk for most retirement savers is not the next bear market. It’s abandoning a perfectly good plan simply because the short-term noise got too loud.

Thank you as always for listening, and once again to view the research and resources supporting this episode, just head over to youstaywealthy.com/270.

Disclaimer

This podcast is for informational and entertainment purposes only, and should not be relied upon as a basis for investment decisions. This podcast is not engaged in rendering legal, financial, or other professional services.