Financial Planning Fridays #101: Annual Market Declines
Intra-year stock market declines occur in nearly every year, yet markets frequently still finish the year positive. Using JP Morgan data showing each year's largest S&P 500 drop alongside its full-year return, this episode reframes routine declines as expected events and potential opportunities rather than reasons to fear.
Intra-year stock market declines occur in nearly every year, yet markets frequently still finish the year positive. Using JP Morgan data showing each year's largest S&P 500 drop alongside its full-year return, this episode reframes routine declines as expected events and potential opportunities rather than reasons to fear.
Key takeaways
- Meaningful intra-year declines occur in almost every calendar year.
- Despite those dips, the market has often finished individual years positive.
- Routine declines are a normal feature of investing, not a malfunction.
- Viewing dips as opportunities supports disciplined, long-term behavior.
- Historical patterns illustrate behavior but do not guarantee future returns.
Hi Friends, today I want to talk with you about stock market declines. I am hoping that by looking at the data together you will see just how common they are and that they are actually opportunities to embrace rather than something to be feared or avoided. This great chart from JP Morgan shows 2 things. It shows the largest market decline of the S&P 500 that happened each year in red and it shows the total return for the S&P 500 in black for each year going back to 1980. You will notice that even though the market was positive in 33 of the past 44 years, the market declined at some point every single year by an average of 14.2%. We did not have any years where the market went straight up the entire time. My favorite example is 1987, where the market dropped 34% and still finished up 2% for the year! Now this chart shows the growth of $100,000 over that same time period, from 1980-present. Even with all of the volatility, and the average annual decline of 14.2% each year, it has grown to more than $14.6 Million. All of those declines we reviewed on the previous chart were actually tremendous opportunities. Opportunities to invest in temporarily lower prices and improve our long-term return. And while we are never certain about when the next market downturn may occur, we are certain of it occurring. So, whether this is something to think about for your children, or grandchildren, or even for your own future as you think about, and navigate, what is hopefully a 30+ year retirement, here are our key takeaways: • It pays to be invested • It pays to stay invested • It pays to be prepared Thank you and I look forward to talking with you next week. Be on the lookout for our next Financial Planning Fridays episode. Subscribe to our Youtube Channel so you never miss an episode. Or contact us directly; schedule your 15-minute call with us today.
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