Since the pandemic last March, the investing environment has been pretty wild. Day trading has seen a huge surge, trading cards have become a thing again, NFTs, meme stocks, and cryptocurrency have all shared the spotlight.
Despite all of the craziness over the last 16-ish months, stocks have steadily moved upward. I wanted to take a step back and look at how different segments of the global market have performed since the lows in mid-March 2020:
Emerging Markets (Brazil, Russia, China, etc.): 64%
Developed Markets (Canada, United Kingdom, Germany, etc.): 76%
Total World Stock Index: 87%
Russell 2000 (small U.S. companies): 118%
S&P 500 (large U.S. companies): 91%
These returns are just bonkers for such a short period of time. Including dividends, the S&P 500 doubled in a little over 15 months. That’s the shortest amount of time since the 1930s that it’s ever taken to double.
As it turns out, investing during a market crash can be lucrative.
Obviously, this is easier said than done. When the pandemic first hit people were scared and the global economy was shutting down. At that time no one, and I mean no one, was predicting the outcome we’ve seen over the past year and change. But that’s the thing, stocks are unpredictable in the short-term.
A while back I wrote about how stock market returns happen in bursts. Missing a few good periods in the market can drastically impact your long-term performance. Over the last 20 years, missing just 30 of the best-performing days was the difference between tripling your original investment or losing money.
This past year has been as close to a blink-and-you-missed-it moment as we’ve ever seen in the stock market. There are people who sold their declining stocks due to fear of the pandemic only to realize too late that they also missed out on one of the greatest bull markets in history. Some market rallies are missable, but it feels like missing out on a 100% increase in 15 months is going to be hard to recover from.
This is why trying to time when you jump in and out of the market doesn’t work.
So, what’s the takeaway? Stay invested.
As you can see from the fantastic returns I listed above, it hasn’t even mattered all that much where you chose to invest this past year. Just invest.
No, stocks aren’t going to go up forever. Markets are cyclical. The S&P 500 has been on an incredible run the last decade or so. Here are the calendar year returns since 2009:
That’s good enough for annual returns of about 16% per year. Of course, it’s not always this easy. One of the main causes of the current high returns in stocks is the low returns that preceded this cycle.
From 2000-2008, the S&P 500 was down 28%. That’s a nine-year run where investors lost close to a third of their money and had to sit through two separate 50% declines.
Who knows how much longer this current cycle will last. It could go for the rest of this decade or end tomorrow. The important thing to remember is that a market decline does not mean you should sell your stocks and stop investing.
Market downswings are a feature of financial markets; not a sign that they are broken. You can’t have the awesome returns from this past year without the previous steep decline that happened as the pandemic hit.
When future stock market declines happen, resist the urge to panic and sell. Every bear market in history has been followed up by an even greater bull market. But if you’re sitting on the sidelines waiting for the perfect time to jump in, you’ll probably miss these amazing buying opportunities.
People have been calling this current market cycle overpriced and poised for a downturn ever since I started in the industry. Meanwhile, we’ve had one of the best decades for stocks there’s ever been.
Thanks for reading!