IN THE PREVIOUS QUARTERLY recap sent out in April, we mentioned the potential long-term benefits of staying invested, no matter how dire things look in the world around us. On March 23, 2020, we witnessed the S&P 500 and Dow Jones Industrial Average drop 34% and 37%, respectively, from their previous highs on February 19th, just a month prior. Since that market bottom in March 2020, the resiliency demonstrated by the market itself has been nothing short of spectacular. It took the Dow Jones Industrial Average just eight months to recover and surpass its previous February all-time high and the S&P 500 an even shorter amount of time as it marked a new all-time high in less than six months. Since then, we have seen the major indexes consistently post new all-time highs month after month.
Looking back on that scary time in early 2020, when fears and uncertainties plagued the market, it would have been tempting to cash out and sit on the sidelines for a while. While no one has a crystal ball, responding emotionally to short-term events can be a mistake. Since the market bottom through July 11, 2021 (the time of this writing) the Dow Jones Industrial Average has climbed over 85%, the S&P 500 over 90%, and the Nasdaq Composite over 110%. Those are truly remarkable figures, and one would be disappointed not to have taken advantage of it.
Losses hurt more than gains feel good. Market lows can result in emotional decision making. Taking “control” by selling out of the market after the worst days is likely to result in missing the best days that follow. As displayed in the chart below, the impact of being out of the market during the best days can significantly impact your portfolio’s performance over time.