Everyone breathed a sigh of relief as markets had several positive days. Don’t be surprised, however, if markets drop suddenly and test or breach previous lows several times over the next few weeks or months. Much like flying through a thunderstorm, there are likely to be some bumpy times ahead. No matter how many times you have flown, your heart jumps every time the aircraft drops. Fortunately, there is no need to time the bottom for long-term investors.
The table below shows 11 markets with drawdowns of 30% or more in the last 90 years. While we don’t know how deep or long this downturn will be, the good news is that in every case markets have come back and often have made sizable gains following the downturn with an average 1 year return of 57% following the trough.
Source: Ben Carlson DFA/Bloomberg.
Markets are likely to go up and down dramatically over the next few weeks or months and will test your emotional fortitude. However, if you can stay invested, you are likely to do well towards meeting your long-term growth goals. So “Fasten Your Seat Belt” and “Stay In Your Seat” until you have reached your final destination.