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Financial Industry Insights from Advisors Asset Management

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AAM Viewpoints — Staying the Course


It is no news to anyone that the markets have been extremely volatile this year. The S&P 500 has closed either up or down by at least 1% on 65 of the last 89 trading days as of 5/10/22, outpacing the average 1% moves of the past 50 years (shown in the table below). On top of that, over 50% of the S&P 500’s members are off at least 20% from their all-time highs, putting them in bear market territory. So, what is the prudent investor to do in such an environment? We believe the answer is the stay the course. We create plans during the good times in order to not panic during the hard times.

S&P 500 average daily moves of the past 50 years | S&P 500 members off percentage of their 52-week high
Past performance is not indicative of future results.

There is always going to be some “reason” to sell or to stay on the sidelines, but today we want to show there is far more to be lost from letting uncertainty keep you out of the market, than by staying in. As we have spoken about before, one of investors’ greatest assets is time. To show just how powerful an investor’s time in the market can be, we calculated rolling period returns for the S&P 500 based on daily pricing data going back to 1928; meaning we calculated the return for every possible start and end date since 1928 for various holding periods. Looking at the table below, we can see incredibly large returns in the shorter holding periods, but also incredibly large variance in those returns. No investor can time the market perfectly, so let us look at something more attainable. The table shows that as holding periods expand the spread between maximum and minimum annual returns narrows and the amount negative market return outcomes decrease. In fact, there were 17,421 rolling period returns calculated for the 25-year holding period, and none of them were negative.

S&P 500 annualized rolling period return performance 

Past performance is not indicative of future results.

S&P 500 max/min annualized rolling period returns
Past performance is not indicative of future results.

One last chart on timing the market, and why following your investment plan is so important. The table below shows the past 12 bear markets.

S&P 500 total returns
Past performance is not indicative of future results.

As you can see in the table, if an investor were to miss the first 10 days following a bear-market bottom in the S&P 500, the average 12-month total return going forward drops from 40.29% to 29.53%, a decrease of 26.7%. Miss a little, miss a lot. This is why it is so important to stay invested; even when times are rough. As we said earlier, we create a plan when times are good so that we have a roadmap when times turn bad. No one can predict every bad market outcome, but with a disciplined investing approach no investor has to in order to have the potential to reach their goals.

CRN: 2022-0506-10021 R


This commentary is for informational purposes only. All investments are subject to risk and past performance is no guarantee of future results. Please see the Disclosures webpage for additional risk information at commentary-disclosures. For additional commentary or financial resources, please visit www.aamlive.com.

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