An electrocardiogram (ECG/EKG) of someone experiencing heart trouble looks eerily similar to the stock market from month to month1.
Difference In Monthly Returns
US Stock Market2
How would you describe the image above?
Chaos? Randomness? Luck?
With so much volatility - up one day, down the next - it's no wonder that investing in the stock market is viewed as a risky endeavor.
2022 proved just how risky investing in the stock market could be, with the average individual investor’s portfolio declining 27% since peaking in December 2021 (compared with the US stock market's roughly 13% decline over the same period)3.
Short-Term Ups & Downs
Fortunately, time is on the investor's side.
While short-term fluctuations in the stock market can be troubling, most relevant time periods experience positive returns.
Even within the small sample illustrated above, there are more positive months than negative (63% positive, 37% negative). This short period is representative of the entire sample available. From the beginning of 1926 through the end of 2022, there are 1164 months on record. 729 months (63% of the total) had positive returns. 432 months (37% of the total) had negative returns. (Interestingly, 3 months had zero return (0.26%), with neither a gain nor a loss.)
1 Year Results4
Most 1-year periods in the US stock market have been positive.
On a 1-year rolling basis, 3 out of 4 (75.5% of the total) single-year periods experienced positive returns. 1 out of 4 (25% of the total) single-year periods experienced a negative return.
3 Year Results
Over all 3-year rolling periods in the US stock market, 84% experienced positive returns.
Historically, if given enough time, only positive returns remain.
Glance back at the chaos of the tachycardia "heart trouble" illustration. Could you have withstood those fluctuations long enough to experience the positive results that appeared?
5 Year Results
Over all 5-year rolling periods in the US stock market, 88% experienced positive returns.
10 Year Results
Over all 10-year rolling periods in the US stock market, 94% experienced positive returns.
15 Year Results
The historical results of all 15-year periods in the US stock market are nearly perfect. Only 3 out of 961 rolling 15-year periods experienced a negative return (0.3%).
20 Year Results
There have been no negative 20-year rolling periods in the US stock market.
Investing is risky. Not investing is risky too.
US stock market returns have historically been overwhelmingly positive, but it can still be hard to invest today when the short-term results are so chaotic.
Yes, investing is risky,
not investing is risky too.
Yes, investing is risky, but "not investing" is risky too.
You'll likely need to save 10-20x more to reach most retirement goals if your cash savings are unable to keep up with inflation or grow.
Further, once you reach retirement and begin drawing from your nest egg, "not investing" can create a risk of full portfolio depletion in approximately 20 years for those holding primarily cash or remaining similarly uninvested (especially if inflation surges).
Fortunately, there exists a way forward that balances your need to preserve your nest egg with your need for growth. We describe these ideas further in our Insight Article: The Investment Instructions In My Will. These investment instructions are essentially identical to certain instructions in our personal estate documents. It is what we believe is best for our family's investment assets after we are gone, and the same principles we help clients apply every day.
Have questions? Want to talk this through? That’s what we’re here for!
Call (775) 827-0670 or schedule some time with us at www.openwindowFS.com/connection.
With the right investment approach, positive results are the expectation rather than the exception.
- Medical professionals might recognize this image to be similar to a tachycardia/torsades de pointes/TdP rhythm.
- “US Stock Market” represented by the S&P 500 Index, monthly returns, January 1990 to December 2011. For illustrative purposes only.
- According to estimates from Vanda Research, as published by the Wall Street Journal on February 4, 2023. https://www.wsj.com/articles/the-retreat-of-the-amateur-investors-11675486817
- “US Stock Market” 1, 3, 5, 10, 15, and 20-year rolling returns of the S&P 500 Index from January 1926 to December 2020. For illustrative purposes only.