What Blue vs Red Means to Investing

The battle of blue vs red continues... No, we are not talking politics -- we are talking stock market performance!

The chart below is one of our favorites, showing the historical performance of the S&P 500 Index, highlighting periods when the market was rising ("bull markets" in blue) and falling ("bear markets" in red). Bear markets are defined as peak-to-trough downturns of 20% or greater from new index highs, while bull markets are increases from the trough through the next new index high.

The takeaway -- there is lots more blue than red! Good times for the market have been disproportionately longer than the bad times. While the chart does not reflect the current downturn, we think it provides a valuable lesson as we navigate a challenging time. Long term investors are rewarded for staying disciplined.

S&P 500 Index Total Returns

JANUARY 1926 THROUGH DECEMBER 2021, USING A 20% THRESHOLD FOR DOWNTURNS

See footnote. Past performance is no guarantee of future results. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio.

FOOTNOTE: Chart end date is 12/31/2021, the last peak to trough return of 119% represents the return through December 2021. Due to availability of data, monthly returns are used January 1926 through December 1989; daily returns are used January 1990 through present. Periods in which cumulative return from peak is –20% or lower and a recovery of 20% from trough has not yet occurred are considered bear markets. Bull markets are subsequent rises following the bear market trough through the next recovery of at least 20%. The chart shows bear markets and bull markets, the number of months they lasted and the associated cumulative performance for each market period. Results for different time periods could differ from the results shown. 

Source: S&P data © 2022 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved.

The author does not intend to provide investment, legal or tax advice as these materials are for general educational purposes only. Please consult your legal, tax or investment professional for advice on your particular situation. This material is derived from sources believed to be reliable, but its accuracy and the opinions based thereon are not guaranteed. It is not intended to be a solicitation, offer or recommendation to acquire or dispose of any investment or to engage in any other transaction. Investing involves risk including the possible loss of principal. Past performance does not guarantee future results. Please refer to RRCM’s Form ADV Part 2 for additional disclosures regarding RRCM and its practices.