Personal Finance

Staying Invested for the Long Haul

February 27, 2020
For a long time horizon, stocks provide the highest potential return compared with bonds or cash.

Key Points

  • Volatility can pull a portfolio value down in the short term, but it shouldn’t pull you away from your long-term plan.
  • 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 you 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 you need to maintain your 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 has experienced two major downturns since 2000, it bounced back each time and eventually reached higher levels. The chart below demonstrates how the market has fluctuated over the past 20 years. While stocks saw some drastic dips, they also rallied periodically for strong gains.

Over a long-term time horizon, stocks provide 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.  

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.

While market downturns can lead to short-term losses, the picture changes with a long-term perspective. As the chart below shows, holding stocks for longer periods can reduce the average annualized volatility over longer holding periods. The stock market has delivered positive returns for every rolling 20-year period covered in our analysis.

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.

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 2019. 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.

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