History Shows That Stock Gains Can Add Up After Big Declines
Sudden market downturns can be unsettling. But historically, US equity returns following sharp downturns have, on average, been positive.
- A broad market index tracking data since 1926 in the US shows that stocks have tended to deliver positive returns over one-year, three-year, and five-year periods following steep declines.
- Cumulative returns show this to striking effect. Five years after market declines of 10%, 20%, and 30%, the cumulative returns all top 50%.
- Viewed in annualized terms across the longest, five-year period, returns after 10%, 20%, and 30% declines have been close to the historical annualized average over the entire period of 9.8%.
Sticking with your plan helps put you in the best position to capture the recovery.
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Resource: Dimensional Fund Advisors