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Help Clients Keep a Long-Term Focus in an Uncertain Market

For investors with a long-term time horizon, stocks historically provide the highest potential return compared with bonds or cash.

Key Highlights
  • 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
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.

Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). BARCLAYS® is a trademark and service mark of Barclays Bank Plc (collectively with its affiliates, “Barclays”), used under license. Bloomberg, or Bloomberg’s licensors, including Barclays, own all proprietary rights in the Bloomberg Barclays indices. Neither Bloomberg nor Barclays approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.

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
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.

Additional Disclosures

S&P—The “S&P 500 Index” is a product of S&P Dow Jones Indices LLC, a division of S&P Global, or its affiliates (“SPDJI”), and has been licensed for use by T. Rowe Price. Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC, a division of S&P Global (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”). T. Rowe Price’s product is not sponsored, endorsed, sold, or promoted by SPDJI, Dow Jones, S&P or their respective affiliates, and none of such parties make any representation regarding the advisability of investing in such product nor do they have any liability for any errors, omissions, or interruptions of the “S&P 500 Index”.

FTSE—Source: London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). © LSE Group 2020. FTSE Russell is a trading name of certain of the LSE Group companies. “FTSE®” is a trademark of the relevant LSE Group companies and is used by any other LSE Group company under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor, or endorse the content of this communication.

This material has been prepared by T. Rowe Price for general and educational purposes only. This material does not provide fiduciary recommendations concerning investments, nor is it intended to serve as the primary basis for investment decision-making. T. Rowe Price, its affiliates, and its associates do not provide legal or tax advice. Any tax-related discussion contained in this material, including any attachments/links, is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding any tax penalties or (ii) promoting, marketing, or recommending to any other party any transaction or matter addressed herein. Please consult your independent legal counsel and/or professional tax advisor regarding any legal or tax issues raised in this material.

Important Information

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.

Information contained herein is based upon sources we consider to be reliable; we do not, however, guarantee its accuracy.

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.

T. Rowe Price Investment Services, Inc.

© 2020 T. Rowe Price. All rights reserved. T. ROWE PRICE, INVEST WITH CONFIDENCE, and the bighorn sheep design are, collectively and/or apart, trademarks or registered trademarks of T. Rowe Price Group, Inc.

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