Financial Planning Fridays #190: Investing at the Worst Possible Time
Jerry Davidse reviews historical data on major market crises since 1929, including the Great Depression, and what would have happened to an investor with the worst possible timing at the start of each one. He explains that despite steep short-term drawdowns, markets have historically produced positive long-term returns, underscoring the value of staying invested.
Jerry Davidse reviews historical data on major market crises since 1929, including the Great Depression, and what would have happened to an investor with the worst possible timing at the start of each one. He explains that despite steep short-term drawdowns, markets have historically produced positive long-term returns, underscoring the value of staying invested.
Key takeaways
- Since 1929, major market crises have produced short-term drawdowns ranging from 27 percent to more than 86 percent during the Great Depression.
- Despite difficult starting points, markets have historically gone on to produce positive long-term returns after every crisis studied.
- The average annualized return across these historical crisis periods has been about 8 percent, but past performance does not guarantee future results.
- It is not possible to predict when a crisis will begin or how long it will last, which is why staying invested through downturns has mattered more than timing them.
Hi friends. With the war in the Middle East now almost a month old, I wanted to address one of our clients' greatest fears. What happens if you invest at the worst possible moment? In this chart, we looked at some of the biggest crises we have faced since 1929 and then analyzed what if you invested right at the start of each one, just before the market began to decline.
As you can see, the short-term experience was very uncomfortable. The drawdowns ranged from 27% to more than 86% during the Great Depression. These moments tested even the most disciplined investors. But what is far more important is what happened next. Despite those difficult starting points, the market went on to produce positive long-term returns in every case. In fact, the average annualized return across these challenging periods is about 8%.
So even if someone had the worst possible timing imaginable, investing right at the onset of a major crisis, the long-term outcome was still solid and consistent with what we'd expect from equity markets over time. It is impossible to predict when these crises will begin or how long they will last. Temporary declines are a normal and necessary part of long-term growth.
Our role at Presilium is to help you stay disciplined through those periods, remain focused on the long term, and take advantage of opportunities when they arise, rather than reacting emotionally to the crisis in the moment. Because as history shows, it is not about avoiding difficult markets, it is about staying invested through them.
If you had invested $1,000 in 1929 in the US stock market before the start of the Great Depression, it would be worth almost $9 million today, even after having to endure those eight major crises we just discussed. Thank you, and I look forward to talking with you next Friday morning.
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