I've got 2 charts that I really wanted to share that I believe are very relevant to our present situation.
From April 3rd to April 8th we saw a historic drop in the market. The S&P 500 fell by 12% during those 4 trading days which represents the 12th worst 4-day performance for the market in the last 75 years....But what's done is done....What's important is what happens next. Well let's take a look at the chart below which shows us the forward 1, 3 and 5 yr performance of the S&P 500 following the other biggest 4-day declines since 1950.
First thing you'll notice is a sea of green. There have been ZERO instances where the market was lower 1, 3 or 5 yrs later. In fact, the market has always been up and by quite a lot in most cases. In my recent video update I said lower prices today usually equal higher returns tomorrow and this chart certainly supports that idea. There is nothing in this chart that would suggest selling into a market panic is a prudent decision.
Now for the next chart....There is an index that measures the amount of volatility in the stock market and it is called the VIX. If the VIX is low, it indicates the markets are pretty calm. If the VIX is high, it indicates turbulence in the markets. If you see the VIX index rise above 50, that indicates a pretty extraordinary amount of market turbulence. Well, the VIX broke above 50 during the April 3rd-8th market decline. Take a look at the below chart which shows us the forward performance of the S&P 500 following readings of 50 or higher for the VIX over the past 35 years.
Again you're going to see a sea of green indicating turbulence today has typically meant positive returns tomorrow. Just how well has the market done following previous bouts of extreme volatility?
Average 1 yr return? 35%
Average 3 year return? 55%
Average 5 yr return? 129%
Again....There is nothing in this data that would support selling during a market panic as a prudent long-term investment strategy.
I know sometimes it may feel like I'm beating a dead horse when I keep telling you to stay patient and committed to your long-term investment strategy when things get turbulent....But the historical data clearly shows us that this has been a very solid strategy. If you make changes to reduce the volatility today, there's a good chance that decision could cause you to miss out on positive returns in the future. Volatility is the price we pay today for the returns of tomorrow. It has always worked this way and I don't see that changing.