Friday, August 19, 2011

A Chart Summarizing Market Volatility

The chart below shows the return for all the rolling 1, 3, 5, 10, 15, and 20 year periods between 1926 and 2008. 



1 year average returns have fluctuated between almost -50% and almost +50%. But there has not been a 15 year period or longer that the stock market has had a negative return.

Safe investing in the stock market requires a long time horizon. For those who have the time and patience the stock market has always given investors a positive return.


Finally: If you think you can time the market and escape the volatility, read the following from Charles Ellis's Winning the Loser's Game


    “Market timing is a "wicked" idea. Don't try it-ever. Using the S & P 500 average returns, the story is told quickly and clearly: All the total returns on stocks in the past 75 years were achieved in the best 60 months (less than 7 percent of those 800 months-over those long years). Imagine the profits if we could know which months! But we can- not and will not. What we do know is both simple and valuable: If we missed those few and fabulous 60 best months we would have missed almost all the total returns accumulated over two full generations. A recent study by T. Rowe Price shows that a $1 investment in the S & P 500 that missed the 90 best trading days in the 10 years from June 30, 1989, to June 30, 1999, would have lost money (22 cents) and would have made only 30 cents if it missed the best 60 days-but would have made $ 5.59 by staying fully invested. “

Charles D. Ellis, John J. Brennan. Winning the Loser's Game: Timeless Strategies for Successful Investing. (McGraw-Hill, 2002). Page 14.



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