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3 Important Things to Know About US Market Returns Following Sharp Downturns

In recent weeks, the increase in volatility in the stock market has resulted in renewed anxiety for many investors. The world is watching with concern the spread of the new coronavirus. The uncertainty is being felt around the globe, and it is unsettling on a human level as well as from the perspective of how markets respond. 

Sudden market downturns can be unsettling. Sticking with your plan helps put you in the best position to capture a recovery. 

 

From the exhibit above, US MARKET RETURNS FOLLOWING SHARP DOWNTURNS, we can see what has happened on a 1, 3 & 5 year average to the US Stock Market following sharp drawdowns. What have we observed?

  1. A broad market index tracking data since 1926 in the US shows that stocks have generally delivered strong returns over one-year, three-year, and five-year periods following steep declines.
  2. Just one year from a decline of 10% or 20%, returns were higher than the long-term average of 9.6%. And the return after a 15% decline was within half a percentage point of the average.
  3. Looking three and five years later also shows annualized returns averaged higher than the long-term average. 

While it may be difficult to remain calm during a substantial market decline, it is important to remember that volatility is a normal part of investing. Additionally, for long-term investors, reacting emotionally to volatile markets may be more detrimental to portfolio performance than the drawdown itself.


 Unfortunately, building wealth has no shortcuts. Successful investing requires a solid investment approach. 

Life is uncertain. The market is even more precarious. This means building wealth has no shortcuts. Success requires a solid investment approach, a long-term perspective, and discipline to stay the course. Instead of leaving your financial future to chance, you need to have a plan. Cogent Strategic Wealth is here for you.

So, instead of worrying about your future, why not take positive steps to protect it? Set up a Cogent Conversation with us today. We’ll show you how to transform your hard work into durable wealth even through troubling markets.

SCHEDULE A FREE 30-MINUTE CALL

A few disclaimers: 

We must tell you past performance is no guarantee of future results. Anyone who tells you it is, is committing an actionable offense. 

Investing risks include loss of principal and fluctuating value. There is no guarantee an investment strategy will be successful.

Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission.

Eugene Fama and Ken French are members of the Board of Directors of the general partner of, and provide consulting services to, Dimensional Fund Advisors LP. Short-term performance results should be considered in connection with longer-term performance results. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. 

All expressions of opinion are subject to change. This article is distributed for educational purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products, or services. Investors should talk to their financial advisor prior to making any investment decision.