I'll Take 5 Stock Market Facts for Perspective, Alex

The U.S. stock market has been quite volatile this year so far – mostly down – as large company stocks have declined over 12% and small stocks have declined even more at over 20%. This is far from unusual and here are 5 data points that, hopefully, ease your mind about the future.

1. According to Morningstar, the financial research company, the S&P 500 index of large, U.S. stocks gained a total of 429.6% over the last 20 years. So, if you invested $10,000 in May, 2002 it would be worth $52,959 in May, 2022.
2. Also over that time period, the market declined 10% or more at some point during 10 out of those 20 years. The average pullback was a 15% decline. Only 3 of those years actually finished with negative returns, though.
3. During that time, however, if you tried to time the market by selling your mutual funds that hold U.S. stocks when the market declined in an attempt to sell high and buy low again and you managed to miss only the first 10 days of each market rebound – because who knows when that will occur – you would have forfeited more than half of your gains. So, your $10,000 would be worth something like $21,500 rather than more than $52,000.
4. Bank of America research found that from 1929 until now the S&P 500 declined on 46% of the trading days. Stretch the timeframe to any given year, however, and the index declined only 26% of the time. And only 6% of any given 10-year period did the index decline in value. That same research found that there has never been a 20-year period that the U.S. stock market has had a net price decline. The longer you hold, the better chance the value of your investment increases.
5. Dimensional Fund Advisors, an asset management firm, looked at U.S. stock market returns from July, 1926 through April, 2022 and found the average annual return for stocks was 9.95% - an astounding 885,084% total return. It wasn’t a straight line, though:

• During that time the market dropped over 20% 15 times;
• When that happened, the average total drop was 34.8%;
• The duration of the decline from top to bottom was 264 trading days;
• Average cumulative returns 5 years after a 20% decline were 69.9%.

While it doesn’t feel good to any of us when the stock market declines even a little bit, there are some clear lessons from history:

• Don’t try to time the market by selling and buying because you run the risk of missing the upturn – and losing money;
• The stock market, based on history, bounces back and continues its steady climb.

Steve Byars, CFP(R)