Do Downturns Lead to Down Years?

By FirstWave®Financial

Again, we find ourselves in “interesting times”.  There are 2 main questions we often hear during periods like this: How long will this volatility last? and Why are we remaining exposed to risk through these periods of volatility? While we can’t guess what the short term holds, information and perspective is always helpful.

We are reaching out to ensure you remain confident in these periods of volatility and uncertainty. While we cannot know what will happen in the near term, we can review the behavior of markets throughout good times and bad.

Investing for future goals and creating a confident financial future often requires exposing our investments to risk, and while periods of falling stock prices can be concerning, they shouldn’t be surprising.  During the last 20 years the US Market (as represented by the Russell 3000) had intra year drops of 10% or more 12 times.  But here is what has happened by the end of these years:  9 years out of the 12 the US market had a positive return!  You can see from the chart below that 85% of the past 20 years had a positive return despite every one of those years being negative at some point during the year.

Or course, it is unknown what this year’s intra year low might be or whether this year will be a positive year, so why endure the potential for downturns?  Importantly, the goal is to realize the returns presented by long term equity investing.  Over the last 96 years, the S&P 500 returned on average 10%.  But as shown in the chart below, rarely was the actual return near the average as represented by the gray line at the 10% mark.  Less than 8% of the time the market was near the average.  In all other years, the returns fell outside the average – either higher or lower and often significantly so.

Trying to time the market to avoid a downturn is a fool’s errand and can create a costly mistake.  Just missing the best performing days of the last 30 years would have significantly harmed the return of a portfolio begun in 1990, as you can see below.

Staying exposed to equities, at the appropriate risk level for you, remains a central part of investing so you can achieve your financial objectives.  Understanding the potential outcomes and incorporating them into your risk tolerance is part of the important work we do together. Maintain fidelity to your financial plan, and do not take more risk than is necessary to accomplish your goals.

To find out how we can help you transform the complexity and confusion surrounding this important topic into your improved WealthConfidence, call us today (321) 773-7773 to schedule your free initial consultation with one of our WealthCoaches™. For more information about FirstWave Financial check out our website at

“You should not assume that any discussion or information contained in this publication serves as the receipt of, or as a substitute for, personalized investment advice from FirstWave Financial. A copy of the FirstWave’s current written disclosure statement discussing our advisory services and fees is available upon request.”

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