In times of fear or uncertainty, our first inclination is often to “run for the hills”. When we are afraid of the markets that translate to selling our investments and ‘hiding’ in cash. Advisors frequently urge calm and counsel investors to stay invested. But is that really the best strategy?
A recent analysis of the Standard and Poor’s 500 (S&P 500) Index revealed an interesting trend. After peaking on March 24th of 2000, the index fell 47%, then gained 121%, then lost 55%, then gained 529%, then lost 34%, and finally has gained 94% (as of Friday, March 11th, 2021).
An investor who rode out all of the market cycles since March 24th of 2000 would have gained an annualized 7.0% per year over the entire 21+ years. That’s in spite of initially investing at an all-time high. Truly it is time in the market, not timing the market that makes a difference.
The S&P 500 consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market value-weighted index with each stock’s weight in the index proportionate to its market value. Past performance is no guarantee of future returns (source: BTN Research).