(or: Why to Stay Invested in the Market)
Since 1950, the U.S. stock market, as measured by the S&P 500, has declined more than 13% over a three-consecutive-calendar-month period on 10 different occasions.
In eight of these 10 instances, the stock market rebounded by more than 20% over the following year.
In seven of the 10 sell-offs, the subsequent rally was large enough to recover more than all of the market’s previous losses.
As history demonstrates, some of the worst short-term losses were followed by substantial rebounds.
These snap-back rallies were often as abrupt and difficult to time as the original sell-off.
In many cases, investors would have been better served by remaining fully invested during the entire period — enduring near-term pain, but not missing out on the subsequent rebound.
Investment decisions should be based on an individual’s own goals, time horizon, and tolerance for risk.
From the Market Analysis, Research and Education (MARE) group, a unit of Fidelity Management & Research Co., which provides timely investment-oriented content on developments in the financial markets. Q3 2007 Market Update.