A Visual Guide to the Power of Holding in S&P 500 Bear Markets

Oe have all heard the advice to hold on during times of volatility. As Warren Buffett so aptly put it, “all there is to investing is picking good stocks at the right time and sticking with them as long as they remain good companies.”

Yet when an investor endures month after month of declining portfolios, heeding this advice becomes easier said than done.

If you’re like me, you’re a visual learner who appreciates the power of factual graphics. And with the S&P500 in a bear market, investors are likely looking for reasons why they should be patient and let time work in their favor. Here’s a visual guide that illustrates the power of holding on through market cycles and can help you stay on track to achieve your long-term financial goals.

Image source: Getty Images.

How long did it take for the S&P 500 to reach a new all-time high?

If you’ve been investing for a while, chances are you’ve heard that buying at the top of the market before a bear market has always produced a positive return over time. In other words, if you bought at the worst possible time just before the financial crisis or the collapse of internet companies in the early 2000s, you would still have made money if you were patient and didn’t sell.

That’s good information, but the better question is how long the S&P 500 has gone without hitting a new all-time high.

In the past 70 years, the S&P 500 has never gone eight years without hitting a new all-time high. This means that even if you bought at the worst possible time in a market cycle, you would have to wait less than eight years to break even.

^ SPX Chart

^ SPX data by YCharts

The log scale chart above shows just over 70 years of S&P 500 returns with new daily highs in orange. Gray vertical rectangles show US recessions.

Looking at the chart, it’s clear that the S&P 500’s long-term gains are excellent – ​​around 8% on average per year. You will also notice that the orange line is flat in the 1970s and 2000s. Let’s zoom in on those time periods.

Market lull

There are a few periods where it took about seven and a half years to get back to record highs. One took place from January 1973 to July 1980:

^ SPX Chart

^ SPX data by YCharts

Similarly, the bursting of the Internet bubble crushed the market from 2000. It took until October 2007 for the S&P 500 to reach a new all-time high.

^ SPX Chart

^ SPX data by YCharts

However, this peak was short-lived, and after that it took another four and a half years for the S&P 500 to reach record highs again.

^ SPX Chart

^ SPX data by YCharts

The silver lining

Some readers may think we are in another seven-year market lull. And we very well could be. But a silver lining of past multi-year sideways markets is that subsequent years tend to produce extraordinary returns.

Over the seven-year period from 1980 to the end of 1986 (which included two recessions), the S&P 500 produced a return of 124%.

And from 2013 to the end of 2019, the S&P 500 produced a return of 163%.

In sum, even during the worst market downturns, the S&P 500 tends to reach a new all-time high in less than eight years and then produce above-average results in subsequent years.

Patience is essential

No one knows how long the bear market will last or how many months or years it will take the S&P 500 to reach a new all-time high. But what we do know is that the worst market times don’t last too long in the grand scheme of things.

It’s much easier for an investor to be patient if they only invest what they don’t need anytime soon. I hope you now have a better idea of ​​what have always been the worst case scenarios out there and can take comfort in knowing that these worst case scenarios really aren’t too bad after all.

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Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has no position in the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Briana R. Cross