You may have noticed some recent volatility in the stock market, and it’s natural to feel concerned when you see declines on the news. However, it’s important to remember that market fluctuations are normal and often temporary. History shows that staying invested through the ups and downs is a key strategy for long-term financial success.
Below are a few graphics that illustrate:
The year-to-date dip is isolated to US stocks.Foreign stocks and bonds have positive returns. This is a great example of diversification at work. Especially for those drawing income, investing in multiple asset classes helps ensure there is something available to “sell high” during various market conditions.
The holding period matters. The JP Morgan chart shows the range of historical returns over 1, 5, 10, and 20 year periods. Stocks in green, for example, have a return range from -37% to +52% for a one year period since 1950. But, hold those stocks for 5 years and the range tightens to -2% to +29%. For those still saving, buying the dips helps improve return. For those withdrawing income, having a cushion of at least 5 years of spending allocated to fixed income (bonds) helps to prevent “selling low” to produce income.
