A key tenet to investing is the belief that markets rise over time. Clearly it is never that simple. We are all guilty of fretting over stock market tops and bottoms. That is just how we are emotionally wired and the 24-hour financial pornography networks love to continuously feed on our sense of fear and greed.
One of the best ways to help inoculate ourselves from this emotional rollercoaster is to take a picture of the data presented below and imprint it in your mind. We promise that doing so will make you a better investor!
In a nutshell, history (back to 1871) shows that the average market downturn takes less than 8 months to recover - top to the bottom and back to the top.
Since 1871, market downturns have recovered as follows:
A third of time - recovered within 1 month
One half of time - recovered within 2 months
80% of the time, recovered within 1 year
95% of the time, yes those really nasty sell offs, get back to even in 3 - 4 years
7.9 months - on average, since 1871, the time it takes for the market to fully recover back to the previous high watermark!
Unfortunately, way too many of us watch the daily, weekly, monthly market moves like our life depended on it.
In fact, a Fidelity study of 1.5 million workplace savers found that those who stayed invested in the stock market even during the 2008-2009 downturn, the worst market event in nearly all of our lifetimes, far outpaced those who panicked and went to the sidelines.
History can be a wonderful teacher. Our collective challenge is to open our mind to these facts and let them sink in. It takes time and, just like learning any new skill, repeated exercise and coaching is essential. That is where we at Alere Planning can help.