One bad trading day is not the entire year.
The stock market has wavered recently.
A lackluster year just ended, and this year has started
inauspiciously. You may be wondering... should you really be invested in
stocks right now?
Yes, you should be.
In moments like these, investors should not panic and overreact to the
headlines. Instead, they should take the long view of stock market investing.
Impulsive selling now can lead an investor to try and time the market later,
and market timing usually leads investors to make mistakes.
Stock market investing is a long-run
proposition. On a bad day, it may
seem like the whole market is falling apart - but stock market performance is
not measured only in days.
Consider the following statistics, which
highlight some underpublicized truths:
**Even with their poor showing in 2015, stocks have advanced notably in
the last three years. Across 2013-15, the Dow Jones Industrial Average gained
9.97%, the Nasdaq Composite 18.37%, the S&P 500 12.74%, and the small-cap
Russell 2000 index 10.18%. The Dow Jones Internet index advanced 28.85% in
those three years, the Nasdaq Biotech index 35.26%.1
**Just recently, the Dow gained 7.00% in a quarter. The Nasdaq rose
8.38% and the S&P 6.45% in the same interval. When did this happen? The
fourth quarter of 2015. Yes, the same quarter that just ended with everyone
talking about how sluggish the market was.2
**The S&P 500 did lose 0.73% in 2015 in terms of price return, but
its 2015 total return (including dividends) was positive – a yearly gain of
1.38%.3
And now, some long-term historical
perspective:
**Through the decades, the S&P 500 has recovered very well from
many of its major one-day descents. Its January 4 plunge was comparable to its
August 24 drop, when it was down more than 4% during the trading session and
lost 3.2% on the day to close at 1,893.21. It took the S&P just three days
to recover the entirety of that big loss. Before that, there had been 54 market
days in the past 32 years in which the S&P had lost 3.5% or more. There
were 45 year-over-year advances after such days, in contrast to 9
year-over-year retreats.4,5
**In the 88 market years from 1928-2015, the S&P had 63 profitable
years with its average yearly gain being 21.5%. So across the rough equivalent
of a human lifetime, the S&P 500 has advanced on an annual basis 72% of the
time.6
**Looking at the 74 possible 15-year intervals of S&P performance
occurring during 1928-2015, roughly 60% of these periods have seen the S&P
post a compound return of 10% or better. During 1985-99, the index’s compound
return was a striking 18.3%.6
Yes, there have been down years for stocks, severe ones among them –
think of 2008. There have also been great years, and far more positive years
than negative ones. You have to take the good years with the bad. It is simply
part of stock market investing.
Those who sell when the market is down often buy back in well after the
market recovers. Selling low and buying high is a formula for disappointment.
Staying invested through market downturns positions you to buy quality shares
when they are cheaper, and when stocks rally, you are in the market and ready
to benefit.
A particular headline or economic indicator may jolt the market on a
particular day, but you are not invested for one day – you are investing for a
lifetime. We have many positive signs in our economy – solid hiring,
appreciable wage growth, steady consumer spending, a strong housing market –
and they may lead to better corporate earnings in 2016. So be patient; better
days may be ahead for the market.
This material was prepared by MarketingPro,
Inc., and does not necessarily represent the views of the presenting party, nor
their affiliates. This information has been derived from sources believed to be
accurate. Please note - investing involves risk, and past performance is no
guarantee of future results. The publisher is not engaged in rendering legal,
accounting or other professional services. If assistance is needed, the reader
is advised to engage the services of a competent professional. This information
should not be construed as investment, tax or legal advice and may not be
relied on for the purpose of avoiding any Federal tax penalty. This is neither
a solicitation nor recommendation to purchase or sell any investment or insurance
product or service, and should not be relied upon as such. All indices are
unmanaged and are not illustrative of any particular investment. 01072016-WR-1506
Citations.
1 -
wsj.com/mdc/public/page/2_3023-monthly_gblstkidx.html [12/31/15]
2 - wsj.com/mdc/public/page/2_3022-quarterly_gblstkidx.html
[12/31/15]
3 -
stockcharts.com/articles/chartwatchers/2016/01/do-dividends-matter.html
[1/2/16]
4 - tinyurl.com/oksgh26
[8/25/15]
5 - tinyurl.com/jmams7p [1/4/16]
6 -
marketwatch.com/story/understanding-performance-the-sp-500-in-2015-02-18
[2/18/15]