Stock market declines over a few days or months may lead investors to anticipate a down year, but the facts prove this is not the case the majority of the time.
The graphic represents market returns as measured by the Russell 3000 index since 1979 with red lines representing intra-year declines and the black lines representing intra-year gains. Interestingly, the declines ranged from -3% to -49%. Look closely and you’ll notice there are also blue bars each year which represent the positive or negative year-end return.
It may be shocking to realize the market was negative (red lines) at some point of every one of the past 42 calendar years. And yet the market ended the year with gains in 35 of those 42 years (83%).
We share this graphic with you as another example of why we continue to counsel our clients to focus on the long term and avoid getting caught up in the day-to-day ups and downs of your portfolio. If you only checked your portfolio value at the end of each year it just might reduce your stress level.
Volatility is a normal part of investing. Tumbles may be scary, but they should not be surprising. Be aware that this is part of the normal course for the markets. The key to helping your perspective is to keep a long-term focus.
U.S. Market Intra-year Gains and Declines vs Calendar Year Returns (1979-2020)
In US dollars. Data is calculated off rounded daily returns. US Market is the Russell 3000 Index. Largest Intra-Year Gain refers to the largest market increase from trough to peak during the year. Largest Intra-Year Decline refers to the largest market decrease from peak to trough during the year. Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. Past performance is not a guarantee of future results. Values change frequently and past performance may not be repeated. There is always the risk that an investor may lose money. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. Values change frequently and past performance may not be repeated. There is always the risk that an investor may lose money. Even a long-term investment approach cannot guarantee a profit.