The idea that "time heals all wounds" may not always be true, but it does increase the probability of a positive investment outcome.
The speed of the market's descent into bear market territory and its more than 20% rebound earlier this week illustrate the dramatic price swings that can occur during periods of uncertainty. Investor sentiment can change rapidly, impacting their appetite for risk over time. At times like this, understanding your true investment time horizon — a fundamental component in any investment plan — is critical.
On any given day, stocks rise only a bit more than half the time. However, as illustrated above (using the S&P 500 as a proxy), the probability of a positive return in stocks in a given year increases to 77%. Over five years, that probability rises to 91%, while over 10 years, it's 97%. Put simply, the longer that an equity investor remains in the market, the greater the likelihood of a positive outcome. Most investors have time horizons well in excess of a decade. The challenge for many is in navigating periods of volatility and avoiding market-timing. It can be most tempting to sell equities when uncertainty is high. Our accompanying piece illustrates the risk of doing so.
Long-term investors should look through periods of heightened volatility, leaning on a defined asset allocation strategy, rather than reacting to day-to-day market volatility. Over the long-term, the probability of success is high. Patience pays off.
Past performance does not guarantee future results. All investments include risk and have the potential for loss as well as gain.
Data sources for peer group comparisons, returns, and standard statistical data are provided by the sources referenced and are based on data obtained from recognized statistical services or other sources believed to be reliable. However, some or all of the information has not been verified prior to the analysis, and we do not make any representations as to its accuracy or completeness. Any analysis nonfactual in nature constitutes only current opinions, which are subject to change. Benchmarks or indices are included for information purposes only to reflect the current market environment; no index is a directly tradable investment. There may be instances when consultant opinions regarding any fundamental or quantitative analysis may not agree.
Plante Moran Financial Advisors (PMFA) publishes this update to convey general information about market conditions and not for the purpose of providing investment advice. Investment in any of the companies or sectors mentioned herein may not be appropriate for you. You should consult a representative from PMFA for investment advice regarding your own situation.