How Long Will it Take for My Account to Recover?
By Ric Edelman
After watching the stock market fall 45% in the last 12 months, it’s easy to wonder if you’ll ever get your money back. Fortunately, the adage “what goes up must come down” applies in reverse: Volatility works both ways. Here are several examples, based on the S&P 5001 :
- The market fell 25% in 1930, 43% in 1931, 8% in 1932 — and then skyrocketed 54% in 1933.
- In 1937, prices fell 35%. The next year, they rose 31%.
- In 1957, the market fell 11%. In 1958, it jumped 43%.
- In 1960, it gained less than 1%, but then rose 27% in 1961.
- In 1973, the stock market fell 15%. It fell another 26% in 1974 — but then rose 37% in 1975, and 24% in 1976.
- After falling 5% in 1981, prices rose for the next 8 years, posting returns that included 21%, 23%, 32%, 18%, 17% and 32%.
- After a one-year loss of 3% in 1990, prices resumed their ascent, rising for another 9 straight years, with returns that included 31%, 37%, 33%, 29% and 21%.
- Most recently, after falling for three years in 2000-2002 (down 12%, 22% and 29%), the market jumped 29%, then 11%, 5%, 16% and 5%.
Like I said, volatility works both ways — and history shows that the number of years where the market gains far outpaces the number of years where prices fall, and the gains also tend to be bigger than the declines.
Of course, past performance does not guarantee future results. But, if the recent declines have been worrying you, you might want to keep this information in mind.
1An Index is a portfolio of specific securities (common examples are the S&P, DJIA, NASDAQ), the performance of which is often used as a benchmark in judging the relative performance of certain asset classes. Indexes are unmanaged portfolios and investors cannot invest directly in an index. Past performance does not guarantee future results.
Source: S&P 500 Stock Index, Ibbotson Associates, 2008.