Markets can quickly move up but also down. But if you’re a long-term investor, you should not be discouraged by that.
Time and again, long-term buy-and-hold has proven to be one of the best strategies for investors.
The chart below is one of the best we’ve seen for putting in perspective gains and falls.
What’s happening on that chart?
The grey bars show the calendar year return of the stock market, as measured by the S&P 500, from 1980 to 2022. The red dot shows the biggest decline that occurred during each of those years.
The important thing to understand: even though markets fall at some point every year, they usually recover and finish positively most calendar years. That’s been the case in 32 of the last 42 years.
Here’s a good example that is still vivid in our minds. 2020 was the year that COVID broke out and the markets responded with a substantial fall.
Looking at the chart, what was the market’s biggest fall within that year? -34%. Now, look at the return for the whole year. It was +16%!
Even though the fall was big, stocks still managed to recover all the losses and actually end the year with a very good gain.
An investment lesson for the ages – be patient.