S&P 500 Annual Returns and Intra-Year Declines

Last quarter the US stock market as measured by the S&P 500 experienced its first 10% correction since 2011. As you can see from this graph, “Annual Returns and Intra-Year Declines” these types of fluctuations are normal and to be expected. The red dot and red negative numbers on the graph show the largest peak to trough drop during each year and the black bars and black numbers show the total returns for each year. The total returns shown here do not include dividends.

The average intra-year drop during this time period was 14.2%. In spite of this, returns were positive in 27 out of the 35 years listed on the graph. As we have said again and again, and this graph illustrates, market fluctuations are a normal part of stock market investing. Even though we all know market fluctuations are and always will be a part of stock market investing, they are still very scary to most people because they are random, rapid and can last for long periods of time.

Stock market returns never come evenly. There are positive bursts followed by frustrating declines and returns can be poor for many years. A recent example of poor returns over a long period of time was from 2000 to 2009 when the S&P 500 had a negative cumulative return over this 10 year period.

It’s really not difficult to make these market fluctuations work for you instead of against you. All you have to do is:

1. Never selling during a market downturn.
2. Commit to rebalancing and adding to stocks during market corrections.
3. Keep a reasonable amount of your portfolio in more conservative investments that will not fluctuate as much during market downturns. This will help to keep you from panic selling.
4. Learn to expect and embrace market volatility.
5. Take a very long term perspective and by long term we mean the rest of your lifetime whether you are 25 years old or 75 years old.