Economics and markets
Why to focus on long-term market results
April 13, 2023
Sharp or sustained market drops like we’ve experienced in recent years can be hard to stomach. But investing in the stock market has been a prudent long-term strategy for many. Here are some tips for navigating downturns.
Bear markets and corrections are a part of life. Keep a long-term focus.
There have been 12 bear markets in global equities since 1980, but history has shown that equities typically post strong results over the long term.
Note: Although the downturns that began in August 1987 (related to Black Monday) and February 2020 (related to the start of the COVID-19 pandemic) don’t meet a widely accepted definition of a bear market because they lasted less than two months, we are counting them as bear markets and including them in our analysis because of their historic nature. Past performance is no guarantee of future returns. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.
Sources: Vanguard calculations, as of December 31, 2023. MSCI World Index from January 1, 1980, through December 31, 1987, and the MSCI ACWI thereafter. Indexed to 100 as of December 31, 1979.
We don’t know precisely when a recession might start. What we do know is that they end.
Equity prices typically start to recover before recessions run their course.
Notes: This chart shows the one-year annualized returns for the Standard & Poor’s 500 Index from 1973 through 2023. The shaded areas represent months when the U.S. economy was in a recession as defined by the National Bureau of Economic Research. Past performance is no guarantee of future returns. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.
Sources: Vanguard calculations as of December 31, 2023, using data from Refinitiv.
Dramatic market losses can sting. Recoveries typically follow.
Bull market surges have been longer and stronger than the bear markets that preceded them.
Note: Although the downturns that began in August 1987 (related to Black Monday) and February 2020 (related to the start of the COVID-19 pandemic) don’t meet a widely accepted definition of a bear market because they lasted less than two months, we are counting them as bear markets and including them in our analysis because of their historic nature. Past performance is no guarantee of future returns. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.
Sources: Vanguard calculations, as of December 31, 2023, using the MSCI World Index from January 1, 1980, through December 31, 1987, and the MSCI ACWI thereafter. Indexed to 100 as of December 31, 1979.
Timing the market is futile; the best and worst trading days often happen close together.
Sources: Vanguard calculations as of December 31, 2023, based on data from Refinitiv using the Standard & Poor’s 500 Price Index.
Past performance is no guarantee of future returns. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index. All investments are subject to risk, including the possible loss of the money you invest. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account.
Don’t panic during market turmoil.
Investors who have overreacted to market events by moving to cash have seen their portfolios underperform the markets. Long periods spent out of the market make matters worse.
Notes: Equities in the 60% equity/40% fixed income portfolio are represented by the Russell 3000 Index, and fixed income is represented by the Bloomberg U.S. Aggregate Bond Index. Cash is represented by the FTSE 3-Month Treasury Bill Index. Monthly data are from January 1980 through December 2023. Equity losses of more than 10% over three months trigger the move from a 60/40 portfolio to all cash in the illustration. Past performance is no guarantee of future returns. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.
Source: Vanguard total return calculations, as of December 31, 2023.
Balanced portfolios of stocks and bonds have proven resilient.
The longer you hold a balanced portfolio, the more likely you are to experience positive performance.
Notes: Data reflect rolling total returns for the periods shown and are based on underlying monthly total returns for the period from February 1976 through December 2023. The Standard & Poor's 500 Index and the Bloomberg U.S. Aggregate Bond Index were used as proxies for stocks and bonds, respectively. Past performance is no guarantee of future returns. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.
Source: Vanguard calculations, as of December 31, 2023.
Here's what you can do when volatility hits:
Follow these simple steps to avoid overreacting to short-term downturns and to position yourself for long-term success.
Related content
- Our market volatility hub addresses current uncertainties and what this might mean for investors. Visit the hub.
Notes:
All investing is subject to risk, including the possible loss of principal. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income. Diversification does not ensure a profit or protect against a loss. Bond funds are subject to the risk that an issuer will fail to make payments on time, and that bond prices will decline because of rising interest rates or negative perceptions of an issuer's ability to make payments. Investments in stocks or bonds issued by non-U.S. companies are subject to risks including country/regional risk and currency risk. These risks are especially high in emerging markets.
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