The Longer View on Stocks
By Wes Crill, PhD, Dimensional Senior Client Solutions Director and Vice President
Stocks turned up the volatility to 11 in April.1 The decline of –10.5% over April 3–4 was the worst two-day stretch for the S&P 500 Index since March 12, 2020. Then, on April 9, the index gained 9.5%, the third-largest one-day return since 1987.
During these sorts of ups and downs, it’s helpful to zoom out and view market returns over the longer term. Trailing one-, three-, and five-year returns were in line with historical ranges, with or without the rally on April 9. And the effect of a single day’s return becomes muted when expanding the measurement period. For example, while the one-year return swung from –2.9% to 6.2% after April 9, the five-year return budged much less, from 14.0% to 16.4%.
This is not meant to trivialize recent market volatility. Rather, it’s a reminder that when it comes to stocks, taking the long view may help investors avoid reacting to short-term market movements. The nine-percentage-point difference in one-year return between April 8 and 9 illustrates the danger of panicking and divesting just one day early.
David is the Co-Founder and Chief Investment Officer of Rappaport Reiches Capital Management. He acts as personal CFO to entrepreneurs and corporate executives, providing organization and clarity in their finances. Please connect with David below. He loves to talk about investing, financial planning, and Aspiritech, a non-profit hiring individuals on the autism spectrum.
FOOTNOTES
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1. If this reference is unfamiliar, you need to see the movie This Is Spinal Tap immediately.