Investors have experienced a dramatic start to the decade with two stock market drawdowns of more than 20%. Here, we use two charts to illustrate how in the worst of markets, investors who maintain discipline can quickly capture the best of markets.
We all remember the decade’s first drawdown in 2020. While this was an uncomfortable time for many investors, those who maintained discipline were rewarded. During the drawdown, I doubt that few of us felt the S&P 500 would mount a stunning recovery and end the year in positive territory, as shown below.
While the market might not recover by the end of the year, we can look to history as a guide for expected returns, seeing that after a decline of 20% or more, the S&P 500 posted strong average returns over the next 1, 3, and 5-year periods, as shown below.
