“In bear markets, stocks return to their rightful owners” – J.P Morgan.
Bear markets have a tendency to drive out owners of stock that should have never had owned stocks in the first place. That is because these owners often don’t have the financial or emotional wherewithal to stick it out. It is rarely the long-term investors with a game plan that jump ship. Because of this, some of the worst days on record for stocks are often followed by positive trading days as the “rightful owners” scoop them up.
Although things could certainly get worse, history tells us that things usually do get better when we zoom out a bit. The S&P 500 index declined 5% or more in one day only 25 times since 1950 (Maggiulli, 2020). Over those 25 instances, the index return was positive at the end of the year following the 5% or more decline 22 times.
However, there were many more instances where returns were negative 1, 3, or even 6 months later. In many of those 22 instances, you had to ride out months of volatility and negative returns to see things eventually turn around.
Disclaimer: Alex Voorhees and Reston Wealth Management do not provide legal, accounting or tax advice. This information is not intended to be a substitute for specific individualized investment, tax or legal advice. We suggest that you discuss your specific situation with a qualified investment, tax or legal advisor. The opinions voiced in this article are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) or strategies may be appropriate for you, consult your financial advisor prior to investing. No strategy assures success or protects against loss and past performance does not guarantee future results. You should consider the investment objectives, risks, charges and expenses of any investment carefully before investing. You cannot invest directly in an index.
Maggiulli, Nick. “The Worst Day of Our Investment Lives.” Of Dollars And Data, 11 Mar. 2020, ofdollarsanddata.com/the-worst-day-of-our-investment-lives/.