While stocks historically have been volatile, especially in response to major domestic or world events,
a review of market data shows that their prices in many cases have returned to less volatile patterns
over longer time periods. That can be good news for long-term investors.
Modest worldwide economic growth, fears about global trade
policies and political turmoil in the U.S. and abroad are a few
of the issues that have contributed to market volatility and
In the stock market, volatility typically refers to the size and
frequency of price movements. In general, higher volatility
means a wider range of potential gains and losses and the
possibility of sharp price moves over short time periods.
An analysis of market data beginning with the years just prior
to the 1929 stock market crash shows that periods of volatile
price movements have not been unusual. Volatility historically
has increased during times of major global events or economic
disruption. It then gradually has declined for a period of time
to what might be considered more normal levels, often after
the triggering issues are resolved.
Cost of missing the market
Some people believe investing is a matter of timing. They say
it is best to invest heavily in stocks when the market is going
up, then get out when the market starts going down. But there
is a problem with that strategy: Even the smartest investment
professionals can’t accurately predict the exact timing of such
Long-term investment success is more likely to be the result
of a consistent approach, based on time in the market — not
market timing. For example, selling when markets decline can
put investors on the sidelines when stocks change direction.
Turnarounds can happen quickly and typically have been
strong in their early stages. Missing even a few of the stock
market’s best single-day performances could have a significant
effect on an investment portfolio.
The cost of missing the market can be significant
Average annual total returns of the S&P 500 Index for the period 09/30/1999–09/30/2019
Source: Morningstar Direct. The S&P 500 Index is a float-adjusted market capitalization weighted index that measures the large-capitalization U.S. equity market. It is not possible to invest
directly in an index. Past performance is not a guarantee of future results.
Value of an investment plan
History shows that it is rare for the stock market to have two
bad years in a row and even more rare to record three bad years
in a row. When the market has recovered from downturns, it
historically has done so with powerful rallies. In addition,
bull markets historically have lasted an average of three times
longer than bear markets.
Even in the worst 20-year period the stock market has ever
experienced — 1928 to 1948 — the S&P 500 Index posted an
average annual gain of 0.55%. While that is a modest amount,
remember that those two decades included the Crash of 1929
and the Great Depression of the 1930s, when unemployment
soared to 25%, U.S. gross domestic product plunged by more
than 30% and land values plummeted more than 50%. Despite
the economic challenges of those difficult years, a patient and
committed investor could have had a positive return on money
invested in the stock market.
Overall, history shows that patient investors who remain focused
on the long term may withstand turbulent periods and take
advantage of the opportunities that global change can bring.
Good years have tended to follow bad years
Source: Morningstar Direct. Annual returns of S&P 500 Index, February 1950–September 2019, assuming reinvestment of dividends. The S&P 500 Index is a float-adjusted market capitalization
weighted index that measures the large-capitalization U.S. equity market. It is not possible to invest directly in an index. Past performance is not a guarantee of future results.
Past performance is not a guarantee of future results. The opinions expressed in this article are those of Ivy Investment Management Company and are not meant to predict or project the future performance of
any investment product. The opinions are subject to change at any time based on market and other current conditions, and no forecasts can be guaranteed. This commentary is being provided as a general source of
information and is not intended as a recommendation to purchase, sell, or hold any specific security or to engage in any investment strategy. Investment decisions should always be made based on an investor’s specific
objectives, financial needs, risk tolerance and time horizon. Investment return and principal value will fluctuate and it is possible to lose money by investing.
Investment return and principal value will fluctuate, and it is possible to lose money by investing. A regular, long-term investment plan does not ensure a profit or protect against loss in declining markets, and involves
continuous investing regardless of fluctuating price levels. Investors establishing an investment plan should consider their ability to continue investing through periods of fluctuating market conditions.