Financial Planning Fridays #92: Keep a Positive Mindset
Drawing on 150 years of S&P 500 returns, this episode shows that positive years far outnumber negative ones and that severe down years are rare. The takeaway is that focusing on infrequent large losses often pushes investors to sell prematurely, while a positive long-term mindset helps them stay invested and capture market growth.
Drawing on 150 years of S&P 500 returns, this episode shows that positive years far outnumber negative ones and that severe down years are rare. The takeaway is that focusing on infrequent large losses often pushes investors to sell prematurely, while a positive long-term mindset helps them stay invested and capture market growth.
Key takeaways
- Across 150 years, positive market years have greatly outnumbered negative ones.
- Down years of more than 20% are historically rare events.
- Fixating on rare large losses leads many investors to sell at the wrong time.
- A long-term, optimistic mindset supports staying invested through volatility.
This chart shows the range of returns for the S&P 500 for the past 150 years. Many investors spend a lot of time and effort worrying about the down years, especially those few down years that had annual losses of more than 20%. (Circle on chart) This concern often causes investors to prematurely sell their long-term investments or worse decide not to keep any of their savings in stocks. However, as you can see, these years are quite rare. The S&P 500 has only been down 20% or more 7% of the time in the past 150 years. And it has only finished down more than 40% one time! And of course the market has always recovered those temporary losses and then gone on to make new record highs as we have seen again this year. Most of the time, the market has finished the year with a positive return and 44% of the past 150 years have had a return of more than 10% during the year. Historically, the market has been much more likely to have a year with 20%+ gains then suffer a 20%+ decline. We would all be much better served if we thought more about the fantastic long-term averages of the market, where most of the years are positive, rather than worrying about the relatively smaller chance of an especially bad year, which as a reminder we have always recovered from anyway. This is often easier said than done, which is why it is so important to work with a wealth management team that you trust and that uses a disciplined investment strategy to keep you on track, like we do at Presilium. Thank you and we look forward to talking with you again soon. 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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