brown on green, A Regular column about finances

Stay the Course

Last year (2020) was one of the wildest years ever for the stock market. Reaction to the pandemic caused the S&P 500 (the market) to drop 28.7% from the previous year’s close (on March 20) before roaring back to finish 16.3% positive for the year. Many people get nervous during these market gyrations and wonder what they should do with their retirement funds. Perhaps a little history of the S&P might be helpful.

A review of the last 93 years of the S&P reveals some interesting trends. The period reviewed is from 1928 (just before the Great Depression) through 2020. Over that period, the S&P finished 62 years with a positive return and 31 years with a negative. This is exactly one-third negative years and two-thirds positive years.

The overall average return for all of these 93 years is 7.7%. The 31 negative years averaged a negative return of 13.8%, while the 62 positive years averaged a positive return of 18.5%. The worst return ever was not surprisingly during the Great Depression in 1931 at -47.07%. The second worst was also during the Depression in 1937 at -38.59%. It may be surprising that the third worst year came recently, in 2008, at -38.49%. The best year the S&P ever had was also during the Depression years at 46.59% in 1933 and another 41.37% increase in 1935. Besides those years, there was a 45.02% increase in 1954, a 38.06% increase in 1958, and a 34.11% increase in 1995.

Why are these numbers important? Generally speaking, the market is positive seven out of ten years for any given ten-year period except for the depression years. From 1929-1938 the S&P was negative six of the ten years. When negative years come, they usually don’t happen for three or more years in a row, but the S&P was negative during the first four years of the Great Depression, from 1929-1932. Three negative years have happened in a row only two other times. As the U. S. was headed for World War II, the S&P was negative from 1939-1941. This also occurred from 2000-2002. However, the S&P has had three or more positive years in a row nine times, with the longest streak being eight years from 1982-1989. On two other occasions, it was positive for five years in a row (1995-1999 and 2003-2007).

So, what does all this mean? For long-term investors like those investing for retirement, with at least a ten-year time horizon, it means stay the course. For the Foundation, with endowments that also have an indefinite time horizon, it also means stay the course.

About the Columnist: David Brown is director of Free Will Baptist Foundation. To learn more about the grants program, visit www.fwbgifts.org.