Annual Stock Market Returns and Intra-year Declines

Feb 16, 2018 | Nick Hamilton


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The key observation being that these oscillations​​​​​​​ and volatility are normal for stocks and must be tolerated in order to benefit from the long term growth they can provide within your portfolio.

Graph of market changes

Building on the volatility we’ve seen come back to markets more recently, the attached chart (below) provides important context on whether this behaviour is normal or not.

 

Since 1980 the S&P500 (the broadest US stock market index) has had its ups and downs. The grey bars represent the annual return % provided from stocks with 29 out of 38 being positive. The red dots and numbers actually represent the maximum decline % from the market highs that occurred during that same year. So, for example, in 1980 the market delivered 26% for the year but did at one point endure a -17% decline from a high point achieved at some point during the year.

 

The key observation being that these oscillations and volatility are normal for stocks and must be tolerated in order to benefit from the long term growth they can provide within your portfolio. In fact the 38 year average for these intra- year moves is about -14%. As a reference point, the recent downturn experienced off of the January highs of this year was -11% or so from the highest to lowest points.