August 1 Update: When is the Ideal Time to Invest for the Long-Term

The old Wall Street adage is that the time to invest is when you have money to put to work.  Over the long-term it is time in the market rather than trying to time the market that really matters.  But what about now? Lately, several clients have reached out to us with money to invest, but worried about doing so when the markets have been so volatile.

For 40 years, our firm has been helping coach people into being successful long-term investors. Penny Bond, our founder, was fond of saying that stocks are the only thing in the world that people hate buying when they are on sale. Last year, when the market was at all-time highs, people felt good about investing because the market had enjoyed large gains and it was easier to add money to a portfolio that was performing well. But during times of losses and heightened volatility, investors tend to be more cautious. 

One of the charts we came upon recently, found here on yahoo finance, https://finance.yahoo.com/news/what-usually-happens-next-to-the-stock-market-plunge-152810310.html, shows the trailing returns of the S&P 500 index after the market had declined 20%.  From experience we know when the market falls 20% there is always a catalyst and the news headlines are often unpleasant and every scary, much like today. Perhaps this information will help put people's minds at ease a bit.

Since 1950, there have been 10 instances when the S&P has fallen more than 20%. The average return of the S&P 500 6 months later has been 4% with 60% of the time in positive territory. 1-year after falling 20%, the average return was 15% with 70% of the instances reporting positive returns and 3-years later the average return has been 29% with 89% of the reporting periods in the black (it has not been 3 years yet from the 20% decline experienced in March of 2020). The only time, since 1950, that the market did not bounce back significantly from a 20% decline was the tech bubble debacle of the early 2000’s.  This 3-year period also included the crash of technology stocks, 9/11, and the Enron scandal.

As you know, we never try to time the market. Instead, we rebalance portfolios and we tweak them based on our outlook. It is our policy to avoid making large bets and instead rely on the power of time and diversification to help our clients achieve their long-term goals. Only time will tell if this year’s 20% correction ends up being a good entry point for the long-term, but investors certainly have history on their side.

Be well and take care,

The Bond&Devick Team