Good Days Happen in Bad Markets

We have seen a lot of volatility in 2022 so far. Consider this, about one out of every six trading days has closed with a gain or loss of 2% or more for the S&P 500. This is significant because since 1928, the median number of days each year where the S&P 500 gained or lost more than 2% was only eight out of roughly 250 trading days. Most of us have gone through volatile markets before, and maybe even a bear market or two. This might also be your first time experiencing a market cycle such as this one. Either way we want to remind all of you that this is a normal type of behavior for markets. We know it is frustrating to see the value of your portfolio go down, but this is a perfect time to take advantage of purchasing the great companies you own at a discount. Staying invested and managing through the volatility will prevent you from making a costly mistake.

The chart below shows that good days happen even in bad markets. You’ll notice that during a bear market (when the overall stock market drops in value by 20% or more from its recent high) 50% of the best performing days in the stock market happen. This is the same as the amount of best performing days that have happened during all bull markets (when the overall market is on a rise).

Missing the best trading days can be very costly for an investor. If you take a look at the second half of the chart, you’ll notice that by missing just 10 of the best trading days in 29 years can result in seeing 54% less of a return than staying invested. Missing the 20 best days would result in a decrease of 73%, and missing the 30 best days would result in an 83% decrease in the returns you would have seen just by staying invested.

We know that market environments like this sometimes make you want to act on emotion but it is important to understand that this is the time to lean on your financial plan. Good planning anticipates market downturns like this. It anticipates recessions. Staying invested through downturns is what positions good investors like you to participate in the growth that has historically always followed.

Hang in there, but let us know if we need to set up a phone call to discuss any concerns you may have.