Consider this: since 1926, the first year in the dataset used for this function, there has never been a period of 20 or even 30 years where the returns were negative. This is astonishing, especially for the numerous investors who are currently concentrating on the fact that the return on the reference index has remained flat over the past 12 months.
It also underlines the huge misconception of making an investment decision based on return only for a single year, regardless of the period considered. To make this point even clearer: if you have invested in the S&P 500 in a certain year and your money has been there for 20 years or more, your returns have always been positive.
SPX performance over a period of more than 20 years 1926-2018
Younger investors may find this surprising, especially since equities have been relatively volatile recently, as they have occasionally been for longer periods in the past. From 1929 to 1932, during the Great Depression, it fell to record for four consecutive years, including in 1931 for the largest one-year decline, when the benchmark lost -43.34%.
But even then, the return for that 20-year period that started just before the 1929 crash yielded + 84%. That may be a poor performance, given the gains made during comparable periods of two to three decades, but bear in mind that this was perhaps the worst period ever for the US economy.
More recently, the SPX saw three consecutive years of declines, from 2000 to 2002. An investment in the index on January 1, 2000 would have resulted in a -37% loss in the next three years.
At that time, selling may have seemed like a good idea, but in retrospect it would only have incurred losses. In the next 19 years, the same investment would have returned + 146%, although initially almost 40% of the original capital had disappeared and had to be recovered. If that investor had persisted, they would also have had to survive the losses of the 2008 financial crisis.
Given the dot com bubble and the financial crisis that both occurred during that period, it is unbelievable that even that 20-year period has finally become profitable for investors.
Of course, not every 20-year period is equally advantageous. If you are a relative newbie, or a young investor who is just starting out, you have to work with the decade-plus period that fate has given you.
The best period in this study was from 1980-1999, including the economic boom of the & # 39; 80 to the final days of the dot com bubble, when the S&P + won 2583%. That means that an investor who initially made $ 10,000 would have completed $ 268,300 in 20 years.
The average SPX performance over 20 years was + 820%, the median + 735%. For an investment initiated in the 1970s, the average performance over 20 years was + 1300%; the same investment yielded only an average of + 385% in the 1990s.
Still, it doesn't matter when an investor was born, it remains their choice to invest or not.
Given the statistics, there is no argument that a return of + 385% is still better than 0. And if you are older and do not believe that you have a 20-year investment horizon, consider this adjustment of a ancient Greek saying: & # 39; a family becomes rich when grandfathers invest in stocks they know they will never earn & # 39;
To conclude, a note about market timing: in the end, timing of the market requires a lot of skill and even more luck. This often makes it a lost proposal for many. The good news – you don't have to time the market. While past performance may not be indicative of future performance, history suggests that in the longer term, overall well-being, technology and the economy are all improving. Don't let temporary speed bumps stand in the way of long-term wealth.