Don't be afraid of the Markets

Long-Term Market Trends: A Positive Outlook

A fascinating chart from Stifle Investment Strategy shows the returns of the US market over a 90-plus year period. This extensive chart illustrates the market’s performance, highlighting both the years of growth and the bear markets. Initially, from the Great Depression, we see a five-year period where the market was up by 324%, followed by another five years with a 60% decline. Over four years, the market then rose by 158%, then fell by 30% in the next three years, and subsequently increased by 168% over seven years.

More Years Up Than Down

When you look at the entire period, you’ll notice that the market has been up far more years than it has been down. If you add up all the years of decline, they are significantly fewer than the years of growth. This means that over a typical 30 to 40-year career span in the equity markets, you are likely to experience tough years for only about six to eight years. In other words, 32 out of 40 years will likely be positive.

Fear of Market Downturns

This data helps put the fear of market downturns into perspective. If you are a young investor, say 25 years old, you could have a 50-year investment runway ahead of you. Considering that only 20% of that time might be challenging, isn’t it worth staying invested? For 80% of the time, you will see your portfolio grow, which is a reassuring thought.

Damage Control and Recovery

The extent of damage during downturns is much less severe than the gains during upturns. For instance, while you might see a 324% gain in some periods, the maximum loss recorded was 60%. Even in other periods, the gains were significantly higher than the losses. This pattern indicates that the market is structured in a favorable way. By sticking around and avoiding panic during downturns, you can manage to stay profitable.

The Importance of Staying Invested

The market’s structure is inherently designed to favor those who stay invested. Historical data shows that if you remain patient and do not panic during the down years, you can reap substantial rewards in the long term. A prime example is Warren Buffet, who has made significant gains over decades simply by staying invested. While he is indeed smart in stock picking, his long-term success is also attributed to his patience and perseverance.

Stock Selection vs. Staying Invested

While stock selection plays a role, it’s not always about picking the best stocks at all times. Even Buffet wasn’t in stocks like Apple or Nvidia for long periods. The key takeaway is that avoiding losing stocks and sticking with the market through its ups and downs can yield positive results.