I don’t think it is a stretch to say that many investors are especially nervous about the stock market. Admittedly, I find the fear somewhat surprising. After all, the market’s action hasn’t really been all that troubling, asserts dividend reinvestment expert Chuck Carlson, editor of DRIP Investor.
Sure, volatility is greater this year than last year, but last year was extremely atypical when it came to market volatility. In short, there was pretty much zero market volatility last year. So what we are seeing this year, while feeling a lot more treacherous, is simply a reversion toward more “normal” market volatility.
And yet, despite the greater volatility, the market has pretty much been running in place. The Dow Jones Industrial Average is down slightly through the fi rst half of the year, while the S&P 500 Index is up slightly.
Here’s my guess about what is driving investor angst: daily headlines that shout at us about what is happening in the U.S. and the world — tariffs and trade wars, shifting political regimes across the globe, an extremely divided country in terms of political and social opinions, etc. And it is difficult not to let those feelings and observations leak into your investment views.
My fear is that this headline-driven angst will create a more myopic investor, one who falls prey to emotions and becomes fi xated on the market’s day-to-day movements, making investment decisions based on the news de jour. It’s against this backdrop that I came across some historical data that crystalize why it is a waste of time to focus on the short term.
Here are six simple percentages that are more instructive about investing than anything else I have ever read. Since 1928:
➤ The stock market has risen on 54% of the days.
➤ The stock market has risen in 58% of the months.
➤ The stock market has risen in 73% of the years.
➤ The stock market has risen in 87% of all rolling five-year periods.
➤ The stock market has risen in 95% of all rolling 10-year periods.
➤ The stock market has risen in 100% of all rolling 20-year periods.
Now, I know past performance is not necessarily indicative of future results. However, while history does not repeat exactly, it oftentimes rhymes. And what history shows very clearly is that the longer your investment time horizon and focus, the more likely you are to make money investing.
Look at the percentages for days and months. Basically, whether the market rises or falls on a day or even month is just slightly better than a coin flip. To be sure, your Editor is often asked by the media why the stock market performed the way it did on a particular day or month, and I always provide an answer.
But the raw truth is that daily market movements are truly a random walk. However, as you extend your investment periods, a clear pattern emerges — the longer the time frame, the more likely you will make money owning stocks.
Indeed, roughly three out of every four years the stock market has risen, and the percentages come close to being a sure thing as time periods expand toward 20 years. Now, while I realize there may be some of you reading this who don’t have 20 years left on this earth, I would argue that virtually all of us have at least 5 or 10 years left to invest.
And if you do, the odds of success are in your favor if you focus on those five or 10 years versus focusing on what is going to happen in the market tomorrow or next month or even next year.
Don’t let your short-sightedness impact your longterm vision. Don’t let the headlines infect your investment judgement. Don’t get caught up in the trading game, thinking you can trade in and out of the market to avoid short-term declines. As the numbers show, that is a tough game to win. Bottom line — play the percentages, and remember that time is your best friend as an investor.
