A Brief History of the Ups and Downs of the Market
Investing in the stock market is a lot like riding a roller coaster—you know there will be drops, but that doesn’t mean your stomach won’t lurch when they happen. Every investor dreams of a smooth, uphill ride to wealth, but in reality, markets take detours, hit potholes, and sometimes feel like they’ve been hijacked by a mischievous toddler at the controls. Yet, history shows that those who hang on tight and resist the urge to jump off mid-ride are usually the ones who reach their destination with the best returns.
On average, the S&P 500 has increased in price by about 12% per year since 1926. Nice!
What’s also true during that same timeframe is that the markets have on average saw an intra-year decline of 11%.
Despite significant intra-year declines, most years still ended with positive returns. This reinforces an important lesson—short-term declines are common, but they do not dictate long-term outcomes.
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Key Takeaways from Nearly a Century of Data
Market Declines Are Normal
Almost every year experiences some level of decline. On average, the annual intra-year drop is -11%, which can feel alarming in the moment but is par for the course. The key takeaway? Breathe. It’s temporary.
Recovery Is More Common Than Extended Declines
While the market can be as dramatic as a 2-year-old throwing a tantrum, history shows that rebounds usually follow downturns. Investors who stay the course often end up in a much better place than those who panic-sell.
Long-Term Growth Requires Patience
Over the last 97 years, despite economic crises, wars, recessions, and fleeting fads, the market has continued its upward trajectory. The biggest winners? Those who stuck with their plan.
How You Can Stay Focused on the Horizon
1. Avoid Emotional Decision-Making
Selling in response to a temporary decline is like jumping out of a plane mid-flight because of a little turbulence. Unless you have a parachute (or a time machine to predict the market), staying seated is the better choice.
2. Diversify to Manage Risk
A diversified portfolio helps cushion the ride. Instead of putting all your eggs in one basket, spread them across different investments—because no one wants to be the person who went all-in on Blockbuster.
3. Stick to a Long-Term Investment Strategy
A well-thought-out investment plan is like a sturdy ship—it won’t prevent every storm, but it’ll keep you afloat and get you where you need to go.
4. Remember That Timing the Market Is Risky
Many investors think they can outsmart the market, but missing even a handful of the best recovery days can dramatically reduce returns. In other words, trying to time the market is like trying to predict the exact moment your toast will pop up—it’s unpredictable, and you’ll probably burn yourself.
5. Just Stop Looking for a While
If your portfolio is well diversified and risk appropriate, just take a break from looking at the day to day. Watching every single flash of the ticker tape or the next “BREAKING NEWS” headline (literally every headline these days) won’t do anything for you or your portfolio. Go exercise, spend some time with family or friends, or watch a movie.