In stock market downturns, many investors are relieved to be on the sidelines. But then this worry often sets in – If I’m not invested how do I reach my financial goals? One way to answer that question is to look at what could have happened if you ignored the dramatic headlines and had simply stayed invested. As the graph shows below, the stock market has constant ups and downs, but typically returns to its previous high with time, even after bear markets.
S&P 500 Index
Stock market returns represented by the S&P 500 Index. Source: Morningstar.
This example is for illustrative purposes only and is not intended to be representative of the performance of any actual or future investment available to investors. It is not possible to invest directly in an index. Returns are calculated in U.S. dollars and assume reinvestment of all income and no transaction costs or taxes for the period January 1, 1985 to June 30, 2022. Actual returns would be different due to fees and expenses associated with investing which are not applicable to an index. For purposes of this illustration, a bear market is defined as an index falling at least 20% from a previous high.
Time in the market is time well-spent
When markets start to fall, our instincts often tell us to sell now and buy again later. That may seem logical, but how do you pick the right time to exit or re-enter the market? Because rallies can sometimes come in surges measured in days not weeks, being out of the market for even a few days can mean missing out on gains.
Missing the best days can hurt
Growth of $10,000 in the S&P 500 Index, 20 years ending 12/31/21
For illustrative purposes only. Returns have been rounded to the nearest whole number for simplicity.
Past performance is no guarantee of future results. It is not possible to invest in an index. Index performance does not include any investment-related fees or expenses.
Source: FactSet and S&P US. Daily data as of December 31, 2001 through December 31, 2021. Analysis ranks all daily returns and investors that miss out on those returns simply do not grow their investment by that return for that particular day. If the following day does not fall into a range that they are meant to miss, then the growth of the investment resumes.
Reproduced with permission from MFS Investment Management Canada Limited. No securities commission or similar regulatory authority in Canada has reviewed this communication. Unless otherwise indicated, logos, product and service names are trademarks of MFS and its affiliates and may be registered in certain countries.
When the markets fall, it pays to stay focused on your long-term investment goals.
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This content is provided for information and illustrative purposes only and is not intended to provide specific financial, tax, insurance, investment, legal or accounting advice and should not be relied upon in that regard and does not constitute a specific offer to buy and/or sell securities.
Information contained in this document has been compiled from sources believed to be reliable, but no representation or warranty, express or implied, is made with respect to its timeliness or accuracy.