Intra-Year Declines

By Nick Clay

Following each quarter, JP Morgan publishes their “Guide to the Markets” which has plenty of useful information about the various stock and bond markets. The chart below, I think, is especially interesting. Although it is from the quarter ending 6/30/15, it illustrates a very timely point.

Whether it be the continued decline of the US Stock Markets, media-driven fear or many investors possibly losing money for the first time in years – it has some people asking, should I get out of the stock market?

jp morgan graph

The chart above dates back to 1980 and shows the annual return for the S&P 500, as well as the lowest point in the year for the S&P 500. Even though in 27 out of the 34 years the S&P 500 finished in positive territory, all 34 years had a point where the S&P 500 was down, and in some cases significantly.

  • Every year but one the S&P 500 was down at least 5% or more at some point in the year. In 27 of those years, the S&P 500 still finished with no loss or a gain for the year.
  • Eighteen times the S&P 500 was down at least 10% or more at some point during the year. Twelve of those times the S&P 500 still finished with no loss or a gain for the year.

This chart indicates long term investors shouldn’t overreact to short term volatility. It is clear that the S&P 500 is capable of recovering from intra-year declines as it has proven to do so countless times. Does that mean we will finish the year in positive territory? Not necessarily. But it does mean the market has the ability to correct itself over time and long term investing is rewarded. We’ve done blogs in the past about trying to time the market and the consequences of that strategy.

While the media would like you to believe their spin on a doomsday scenario, it is important for you to discuss your investments and allocation with your financial advisor to determine the appropriate course of action. Many times the biggest “change” you need to make with your investments is nothing at all.

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