It is normal to be nervous about investing. Investing in stocks is risky and everyone hates losing money. Even if people say investing is the way to wealth, it's easy for investors to recall the years that the stock market crashed.
Those fears were reaffirmed by the rollercoaster ride that February brought during the first week.
However, you can calm your fears by simply looking at year-by-year market returns. It is fascinating to look at this chart showing the annual returns of S&P 500 (including dividends), dating back to 1928, just before the Great Depression.
You can get a good idea of the market's performance over the past nine decades by looking at those returns. You may be surprised at the surprising facts that you find. This will help you to forget your fears about investing.
What Is the Stock Market?
A stock market refers to any exchange where shares of publicly held companies can be purchased or sold. OTC Marketplaces follow a set number of regulations.
Both the terms "stock market", and "stock exchange" are often used interchangeably. Stock exchange traders trade shares on any stock exchange that makes up the overall stock markets.
These are some tips to calm nerves from almost 90 years of S&P 500 performance.
1. Its Winning Streaks Last Longer Than Its Losing Streaks
The S&P 500 just celebrated its ninth consecutive year with positive returns. From 1991 to 1999, we had a nine-year winning streak, eight years in the 1980s, six after World War II, and a nine-year streak of bad years.
The longest bad-year streak is only four years, which occurred during the Great Depression. Only two other cases of a losing streak lasting three years exist, one since 1941.
2. Its Extreme Highs Outweigh Its Extreme Lows.
All of us remember the times when the stock market took a steep dive. The S&P 500 fell nearly 37% in 2008. It dropped 44 percent in 1931. These bad years aren't so bad when you consider the fact that the stock market can rise by a greater percentage.
It grew by 53 percent in 1954 and 43 percent four years later. In 1975, we saw a 37% return, and in 2013, a 32% jump. You can find a year in which the S&P 500 has had a bad year.
3. The Good Years Almost Always Follow the Bad Ones
There have been 24 years since 1928 when the S&P 500 reported a negative return. In 16 cases, the index returned positive returns the next year.
The stock market can rebound from a bad year if it is about two-thirds of the time. The market will usually rebound from a poor year by showing a higher percentage than its decline in previous years.
4. Double-Digit Returns are Much More Common Than Single-Digit Returns
What is the difference between a great return and a good one? Most people would consider anything over 10 percent a wonderful return.
That's 51 times more than what has happened since 1928. In the same period, the S&P 500 has fallen just 24 times per year and only 15 instances have seen the market rise less than 10 percent. The stock market has shown a tendency not only to rise but to also go up large.
5. A Majority of 10-Year Returns are Positive
It is recommended that you look at the 10-year return on any investment. It is a good indicator of overall returns, even when there are down years.
Consider all the 10-year periods since 1928. Find one that has a negative total return for the S&P 500. It will take a lot of effort. A 10-year analysis shows that 88 percent of the decades have yielded positive returns. This statistic highlights the importance of patience when investing.
6. It Takes Five Years For a Full Recovery to Occur.
It's not difficult to recover all your losses within a year. There's no denying that stock market drops can be devastating.
You can lose $1,000 if you invest $1,000 but only get back $800 if you make a 25% gain (200). That's tough. The stock market isn't going to make it difficult for you to get back into positive territory.
There's a chance that you were among the many who lost a lot of cash in the 2008 market crash. You could get all of your money back by 2012.
You probably recovered from losses suffered during the downturn between 2000 and 2002. That's if your contributions stopped. You probably returned to positive territory sooner if you invested when the market was down.