Investing is a long-term game. That’s boring—and that’s why no one’s talking much about it. Scary headlines sell.
And many of us probably do have a bit of proverbial whiplash from March 2020. But patience is the key here, because if history has taught us anything, it’s that the markets do recover—and many times come out ahead…and more quickly than expected. According to the Wall Street Journal when looking at all U.S. bear markets since the mid-1920’s, it took an average of 3.1 years for the broad market to make it back to the same spot it stood before the bear market. The good news is in the five years following a correction, defined as a 20% decline from the high, the market has averaged an annualized return of nearly 10% for nearly all time periods.
Which is why it’s important, in the panic and fear, to take a step back and remember: while these days are incredibly unique (and things are changing by the minute), we can learn quite a bit from history. We can learn how recessions, crashes, bear markets, and market corrections have given way to recovery, growth, and innovation.
We can go all the way back to 1945, when GDP fell by 12.7%. Three years later, it was up by over 15%. Even during the Great Recession of 2007-08, GDP fell by 5%, and three years later was up almost 60%. Sandwiched between those two huge events are multiple recessions, with GDP decreasing anywhere from under 1% to almost 4%. And during all of those times, by the 3rd year, it had increased, with some events achieving as much as an 88% increase. A recession is broadly defined as two consecutive quarters of negative GDP.
What does all this mean? The stock market will be back. And if history is going to teach us anything, it’s that the chances of that happening this time around are pretty much a given. On average, the S&P 500 has been up over 15% in the year following a recession. Oddly enough, the index has actually averaged nearly 4% during the recessions.
No one is sitting here with a crystal ball. None of us have ever lived through anything like this. And really, all of the crises before us have been unique as well. We can only look at what the market has taught us through each of them.
And the silver lining with these events has typically come in the form of innovation and creativity. With each major financial crisis, our country has learned something new. Remember the Great Recession of ’07? Companies like Uber and Pinterest (to name a couple) emerged from the ashes and have changed how people live.
So, our advice? Hold tight if you can. The market will recover – and those who stick it out will be rewarded.
Stay In Touch