Here’s the thing about stocks: They usually go up.
As a bet on the future profits of America’s biggest businesses, and in turn a broad reflection of prospects for the US economy, the S&P 500 tends to go up over time just as the US economy tends to get bigger.
This doesn’t mean, however, that progress for the stock market – or the economy – has always been smooth sailing.
In just the past 15 years the S&P 500 has seen two nasty bear markets, one following the bursting of the tech bubble and the other during the financial crisis. Over the past 18 months or so, the market has been stuck at a new high with a few rapid 10% declines and rebounds mixed in.
But even if you bought stocks only right before the 2000 and 2008 market tops – and then bought stocks again only when they got back to May 2015 highs – you’d still be making money.
This chart, which comes to use from Raymond James analyst Andrew Adams, shows that $100,000 spent on the S&P 500 at each of these three most recent tops still nets investors an $80,000 gain (or 26.6%) over this period. And this doesn’t include the roughly 2% dividend the index pays.
- Raymond James
“For most people, it can be a tough psychological battle to buy when the market is making new all-time highs since no one wants to risk getting in right before a major market top,” Adams writes.
“Yet, history has shown us that you don’t have to time it perfectly to make money in stocks in the long run.”
So the lesson here is that nothing helps out an investor in the stock market quite like time.
No one knows where stocks are going next week, next month, or next year. But if you’re an investor with a long time horizon and a disciplined plan, it really doesn’t matter.
The arc of US economic history bends toward progress, and while the stock market is a fickle reflection not just of American business value but also anxiety, panic, and the madness of the crowds, the market’s broad trajectory is up and to the right.
Just give it time.