In spite of a dismal 2022—the worst year ever for bonds and the seventh worst for stocks—there are reasons long-term investors should be optimistic about the outlook for the long-term picture, contends an article in Forbes. While short-term equity investors should always expect ups and downs, the market is typically more resilient over the long-term.
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While U.S. stocks could potentially return an average of 10% a year, only once in its history has the S&P 500 finished a year with a 10% return. Calendar years are generally more positive than negative; over the index’s history, it’s ended upwards of 20% more than 37% of the time. And stocks and bonds usually end the year on a positive about 75% and 89% of the time, respectively—though of course volatile years will drag down the average, the article maintains.
Markets can reverse quickly, even during the most tumultuous periods: 70% of the S&P 500’s best days came within two weeks of its worst days. And missing those best days can cost investors greatly. All this to say that staying invested and not selling out to cash is usually the best route for investors to take. While stocks and bonds have typically rallied the year following a down year, only negative 33% and 45% of the time, respectively, as a top 10 worst year, 2022 was atypical. Last year was only the third time in history that both stocks and bonds ended the year negative. In most situations, diversification is the best strategy to limit risk, but that’s not foolproof every time. Since it’s so unusual for stocks and bonds to be positively correlated, that could indicate a positive outlook for the market to come, the article contends.
Other reasons to be optimistic? Though bonds were negative in 2021 and 2022, they’ve never been negative three years in a row, according to BlackRock data that’s cited in the article. And year-over-year losses are actually quite common, though out of the last 97 years stocks have only lost money 26 times. However, be prepared for volatility, Forbes warns; following a down year, “20 out of 25 subsequent 12-month periods experienced double-digit gains or losses.”
It’s also important to remember that while the market will rebound, not every company will. Investors should position their portfolio to survive long-term, given the countless crises that could possibly arise, from recessions to geopolitical events to interest rate hikes. A diversified portfolio is likely to generate positive returns over time. After all, Forbes reminds us, “investing is about time in the market, not timing the market.”