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Market volatility is worrisome for many stock investors -- but it doesn’t
have to be. Unfortunately, there are many factors – like heavy media
coverage, short-term performance ratings, etc. -- that make it difficult
for people to keep their long-term perspective when it comes to stock investing.
But history has shown that one of the worst things long-term investors can
do is get caught up in short-term market analysis and timing.
Stock investments
are best for longer-term investors, usually those who have at least 5
to 10 years before needing access to their investment – so maintaining
a long-term focus in regard to market activity is critical.
Here are some key
facts about the stock market that can help put short-term volatility in
perspective:
- Over time, stocks
have historically outperformed all other asset classes, even though
they have also been the most volatile asset class as well.
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Growth of a $1 investment.© Stocks, Bonds, Bills and
Inflation, Ibbotson Associates, Chicago. Used with permission.
All rights reserved. Stocks are represented by the S&P 500 Index.
Bonds are represented by the average return of long-term corporate
bonds (with a maturity near 20 years). T-bills are represented
by 30-day Treasury notes. Inflation is represented by the Consumer
Price Index which is an index of the cost of goods and services
to the typical consumer as determined by a monthly survey of
the U.S. Bureau of Labor Statistics. For illustrative purposes
only. Actual investments cannot be made in an index. Past performance
does not guarantee future results.
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- Historically,
bull markets have outlasted bear markets in both duration and magnitude.
- Recovery from
a falling market is usually swift. On average, 75% of the loss is recouped
in seven months, with full recovery in just over a year.*
- Bear markets are
often followed by strong rallies – which you could miss if you
sell out of the market during its decline.*
- Lower prices give
you the chance to buy stocks on sale. Your dollars buy more shares when
prices are low. That may not seem so great at the time, but you’ll be
happy to have those extra shares if prices rebound!
* Source: David L.
Babson & Co. Statistics since 1953. Past performance does not guarantee
future results.
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