On May 20, the U.S. stock market had fallen 20 percent from its January 3 peak. The media pounced, reminding investors that stocks had officially entered bear market territory. Talking heads on cable news debated whether investors should expect further declines, or whether this event represented an opportunity to “buy the dip.”

As it happens, the market has since rebounded. Are the buyers vindicated? It is too soon to tell, of course. But history provides some insight.

When the stock market declines over a few days or months, investors might conclude a down year is inevitable. But we remind readers that the U.S. stock market had positive returns during 17 of the past 20 calendar years. Severe dips occurred several times during this period, even in years with positive returns. In fact, intra year declines in the Russell 3000 ranged from 3 to 49 percent during these two decades. Even in 2020, when Covid emerged, the market gained 21 percent for the year.

A hypothetical $1,000 investment in U.S. stocks (Russell 3000) made in January 1997 would have grown over the next 25 years to $10,367 (through December 2021). However, if an investor had missed the best week (during November 2008), that ending value falls to $8,652.

These short-term occurrences are of course unpredictable, as are long-term returns. But even if we somehow knew in advance the market’s total return over extended periods, such as the next 30 years, an investor’s ending wealth would still be far from certain. As we explain in the following article, the sequence of daily, monthly, or even annual returns over an investment lifetime will have a substantial impact on future wealth.

Also In This Issue

The Luck Of The Draw: Sequence Of Returns
The Back Page Explained
The High-Yield Dow Investment Strategy
Recent Market Statistics
The Dow Jones Industrials Ranked By Yield
Asset Class Investment Vehicles