For investors with a long-term time horizon, stocks historically provide the highest potential return compared with bonds or cash.
- Volatility can pull a portfolio value down in the short term, but it shouldn’t derail investors' long-term plans.
- Despite some drastic dips from stocks over the past 20 years, they also rallied for some impressive gains.
- Remaining invested in stocks through downturns and corrections allows investors to take advantage of their long-term growth potential.
Keep a Long-Term Perspective
Market volatility is a constant for every investor. That’s why it’s important to focus on each client’s investment strategy and remember the market’s record of long-term growth.
Stay invested to take advantage of the stock market’s growth potential.
Although the stock market experienced two major downturns from 1999 through 2019, it bounced back each time and eventually reached higher levels. The chart below demonstrates how the market has fluctuated over the past 20 years ended December 31, 2019. While stocks saw some drastic dips, they also rallied periodically for strong gains.
Over a long-term time horizon, stocks have provided a higher return potential when compared with bonds or cash. The light blue line represents a 60/40 allocation of stocks and bonds, which has returned comparable gains with less volatility than an all-stock portfolio.
Growth of $10,000
Source: T. Rowe Price, created with Zephyr StyleADVISOR; S&P; Bloomberg Barclays Index Services Ltd.; and FTSE. See Additional Disclosures. Past performance cannot guarantee future results. It is not possible to invest directly in an index. Chart is shown for illustrative purposes only. Stocks: S&P 500 Index, Bonds: Bloomberg Barclays U.S. Aggregate Bond Index, and Cash: FTSE 3 Month U.S. T-Bill Index.
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Stay Invested for the Long Haul
Investing in the stock market requires a long-term perspective. If you focus on the short term, it’s easy to let emotions influence your investment decisions as the market seems to go up and down every year.
Indeed, market downturns can lead to short-term losses. However, the picture changes with a long-term perspective: As the chart below shows, large-cap stocks, for example, have delivered positive returns for every rolling 20-year period covered in our analysis, and holding stocks can reduce the average annualized volatility over longer holding periods.
Help mitigate portfolio volatility by holding stocks for the long term.
Bottom line: Remaining invested through downturns and corrections may allow you to take advantage of long-term growth potential.
What Has Happened When Stocks Were Held for the Long Term
Source: T. Rowe Price, created with Morningstar Direct and S&P. See Additional Disclosures. Price return calculations include dividends and capital gains. Annual returns beginning in calendar year 1970. Rolling 20-year data beginning in 1950. Past performance cannot guarantee future results. It is not possible to invest directly in an index. Chart is for illustrative purposes only.
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This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action.
The views contained herein are those of the authors as of March 2020 and are subject to change without notice; these views may differ from those of other T. Rowe Price associates.
This information is not intended to reflect a current or past recommendation, investment advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services. The opinions and commentary provided do not take into account the investment objectives or financial situation of any particular investor or class of investor. Investors will need to consider their own circumstances before making an investment decision.
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Past performance is not a reliable indicator of future performance. All investments are subject to market risk, including the possible loss of principal. All charts and tables are shown for illustrative purposes only.
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