9 Charts Every Investor Should See


Investing during volatile times can be difficult, especially when markets seem arbitrary. Gaining a historical perspective can help investors’ expectations and reframe events into a more appropriate context. Whether you’re a long-term investor trying to figure out market moves or concerned about your portfolio given the downturn, here are nine charts every investor should see.

Expect Short-Term Equity Volatility

Between 1980 and 2021, the S&P 500 closed a Daily trading session with a positive price return only 54% of the time. So the odds of stocks going up or down on any given day are essentially a toss-up.

But if we look at a full year, the situation improves dramatically. During the same 42-year period, the S&P 500 ended the year with a positive price return more than 75% of the time. It’s usually not a smooth ride. The average decline during the year was 14%.

Equities have shown resilience after major crises

With so many headwinds, what if this time was different?

Markets are constantly changing in response to a multitude of factors: news, economic data, expectations, interest rates, earnings, geopolitical events, etc. While the same set of circumstances that may mark a market slump or downturn don’t exactly mirror the following, the headlines probably have a lot more in common than you might think.

In financial markets, the most extreme volatility is usually due to episodes of uncertainty. Investors process data, including bad news, and assets are repriced accordingly. The media would have us believe that the sky is always falling.

Headlines vs Returns

The drawdowns typically lasted a few months, and each event recorded double-digit returns in the 12 months following the end of the crisis. However, the most severe examples (tech bubble and the Great Financial Crisis) were significant multi-year events. Investors should always take steps to prepare for any type of market downturn or personal financial crisis…before they find themselves in a situation.

Economic recessions against the stock market

Investors might be surprised to learn that over the past 69 years, on average, stocks have done worse in the year before a recession begins than during the recession itself. The longer the time passes after the recession, the greater the likelihood that equities will produce positive cumulative returns.

“I should wait to invest because stocks are at all-time highs”

History does not support the idea that all things being equal, putting money into the market when stocks are setting new highs is a bad idea. Remember that over time, stocks have gone up three out of four years.

“I should wait for the market to recover to invest”

People to like Sales. But not on the stock market. Imagine thinking: I’m ready to buy this car, but the dealer is running a promotion. I’ll wait until I can pay full price.

Regardless of the entry point, over time stocks have produced positive returns. Investing is time in the market, no Hourly the market.

As shown in the chart below, the average cumulative returns were positive in the one, three and five years following an investment during a correction, a bear market or a 30% drop in the stock market.

Time. In. The. Market.

Hindsight is always 20/20

It’s easy to look at charts of past downturns and think I would like to invest. But in real time, the middle of a recession can look like anything but a buying opportunity.

The first half of this year was the worst start on record for bonds and the third worst for stocks. No one can guess where the market is going, but historically, bonds are rarely negative, and the best days for equities usually occur in the weeks following the worst days.

3 reasons to stick with diversification

Diversifying your investments has always been one of the best ways to reduce risk. As the chart above illustrates, even diversification at the highest level (equities and bonds) is not working this year.

It’s very unusual.

If 2022 ends with losses both in the stock and the bond marketit will only be the third time since 1926 for this to happen.

Bond market losses are unusual

The average intra-annual decline in bonds was only 3%, compared to 14% for the S&P 500. Moreover, it is rare for fixed income securities (US Aggregate Bond Index) to end the year with losses. : it just happened four times (about 9%) over the past 46 years.

Investing globally can help

The United States currently accounts for 60% of the global equity market. While a home bias would have benefited US investors over the past 15 years, markets are cyclical, so outperformance isn’t likely to last forever.

Diet changes can be dramatic. Take into account “lost decade” for US stocks that started in the early 2000s. Between 2000 and 2009, the S&P 500 was down 9.1% cumulative vs. MSC
I All Country World Index ex US, which benefited earnings of 30.7% over the same period.

There are also other reasons to consider investing globally.

Remember to diversify into US markets

The S&P 500 gets a lot of attention as the most popular stock market index in the United States. But that’s not the only way to invest in US stocks. Investors should consider the benefits of diversifying their equity exposure beyond a fund that tracks an investment index, specific sector or style of equity. For example, consider the technology-heavy Nasdaq composite index. After peaking in March 2000, it took more than 15 years to return to previous peaks. However, between 2012 and 2021, the Nasdaq outperformed the S&P 500 by nearly 5.4% per year on average.¹

Diversification is about investing in appropriate weightings across all markets, instead of doubling down in one.

It’s been a tough year for investors, but if you believe in capitalism, human ingenuity and the cyclical nature of markets, it’s only a matter of time before markets turn around.


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