Why the Stock Market is Gifting Long-Term Investors a Buying Opportunity
Don't Fear the Short Term Downtrend we are Seeing in the Market.
Hearing "2022 is One Of The Worst Starts To A Year Ever For The S&P 500 Index" can be scary and raise lots of questions. In fact, this is the worst start since 1939. It has been difficult to watch our portfolios seemingly drop in value with no end in sight. Many retail investors have panicked and sold off poor performing stocks, but is this the right answer? Let's look at past data to see if we can use it to help us make any decisions.
First, let's break this down by looking at the End-Of-Year returns for all the years with a negative return though April on this chart:
1931: -47.07%
1932: -15.15%
1935: 41.37%
1937: -38.59%
1938: 25.21%
1939: -5.45%
1940: -15.29%
1941: -17.86%
1942: 12.43%
1947: 0%
1949: 10.26%
1952: 11.78%
1953: -6.62%
1957: -14.31%
1960: -2.97%
1962: -11.81%
1966: -13.09%
1970: 0.10%
1973: -17.37%
1974: -29.72%
1977: -11.50%
1980: 25.77%
1981: -9.73%
1982: 14.76%
1984: 1.40%
1990: -6.56%
1994: -1.54%
2000: -10.14%
2001: -13.04%
2002: -23.37%
2005: 3%
2008: -38.49%
2009: 23.45%
2020: 16.26%
2022: ?
If this is overwhelming for you, here's is the summary: On average, when the S&P 500 is down Year-To-Date at the end of April, the average return for that year is -4.82% for the total year. When looking at the average, it does not seem too bad, and if we were to meet the average, the S&P 500 would have a good return for the rest of the year. Unfortunately, looking at the year-by-year numbers, we see that it is much more volatile and the swings to the upside or downside are much more drastic. This volatility can create an opportunity for investors.
Long term investors should welcome volatility, as it allows them to continue to dollar-cost-average their stocks and index funds, potentially lowering their cost basis, increasing shares, and allowing a greater potential for greater wealth in the future. Investors who are looking to retire soon or may need to sell their stocks for other reasons should evaluate their situations and talk to a professional financial advisor about a strategy in this type of market.
Remember: NOBODY has ever lost money holding an S&P 500 index fund during any 20 year period in history. As crazy as it seems, this is true, and shows just how simple investing can be.
Stay calm, keep buying good companies and index funds, and we should make it out of this rough start alive. Myself, I am buying more and more into VTI, the Vanguard Total Stock Market Index Fund, and stocks like PG, Proctor & Gamble, and TSLA, Tesla. Volatility is a part of the stock market game, and while it may be difficult to stomach watching your investments drop 50%, as long as you believe in your investments and are willing to hold them, you should see great returns in the long run.
Not Financial Advice, all opinions are my own,