Stocks: The 3 Out Of 4 Rule
The current market downturn has led some investors to question their tolerance for taking on the risk accompanies investing in stocks. Volatility and downturns are inevitable, but the good news is that there are far more positive years than negative ones.
The chart below looks at annual US stock market returns from 1926 through 2021. With almost 100 years of history, returns have been positive in about 3 out of every 4 years.
Reaping the benefits of the stock market requires being a long-term investor. It can be challenging to stick to an established financial plan during a downturn, but it's the most effective strategy to capture a future recovery.
Distribution of US Market Returns, CRSP 1-10 Index Returns by Year, 1926-2021
In US dollars. CRSP data provided by the Center for Research in Security Prices, University of Chicago. The CRSP 1-10 Index measures the performance of the total US stock market, which it defines as the aggregate capitalization of all securities listed on the NYSE, AMEX, and NASDAQ exchanges. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results.
David Rappaport, CFP®