Last year the stock market was down over 18%. So far this year, stocks are up about 8%, but we face potential headwinds of a recession. Is now a good time to invest? To best answer this question requires a quick review of the stock market’s history.
In the short term, the stock market can be quite volatile, causing concern. However, over the long term, it has been relatively stable. The average annual returns are quite promising if we analyze the S & P 500 across various time frames. Let’s examine some periods ending with February 2023(1):
- 5 years: 10.382%
- 10 years: 12.475%
- 20 years: 10.326%
- 30 years: 9.749%
- 50 years: 10.432%
- 100 years: 10.331%
These stats may make it seem the stock is mostly moving up all the time, but the truth is the market experiences unpredictable periods of significant negative and positive returns. However, if you go back for fifty years and review rolling 15-year returns, there are no negative outcomes.
The key to successful investing
The most crucial aspect to remember is that consistent investment over an extended period is the secret to success. In fact, if you are ten years or more from retirement and you are on a systematic investment program such as a 401(k), down markets are your best friend. This is because you are buying more shares at lower prices in preparation for the market’s inevitable recovery. You’ll know you have arrived as an investor when your instinct is to find money to invest when stocks enter a bear market.
However, if you are nearing retirement, it is crucial to set aside enough funds that are not impacted by market fluctuations. The amount should be enough to cover three to ten years (or more) of lifestyle expenses in liquid fixed-income funds (CDs, Money Markets, Bonds).
Consult your financial advisor to determine what is best for you.
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Stewart H. Welch, III, CFP®, AEP, is the founder of THE WELCH GROUP, LLC, which specializes in providing fee-only investment management and financial advice to families throughout the United States. He is the author or co-author of six books, including 50 Rules of Success; J.K. Lasser’s New Rules for Estate, Retirement and Tax Planning- 6th Edition (John Wiley & Sons, Inc.); THINK Like a Self-Made Millionaire; and 100 Tips for Creating a Champagne Retirement on a Shoestring Budget. For more information, visit The Welch Group. Consult your financial advisor before acting on comments in this article.
IMPORTANT DISCLOSURE INFORMATION
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by The Welch Group, LLC [“Welch”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Welch. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Welch is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of Welch’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request or at www.welchgroup.com. Please Note: Welch does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Welch’s website or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.