Markets go up over the long term. We know that, and therefore you should hold stocks for a long time. But volatility can be scary for investors
Before 2020, the U.S. stock market had been up in 33 of the past 40 years. Despite ending the year with an 83% win rate, stocks averaged a 14% decline at some point in any given year and were down at one point every single year. So, positive years can suffer significant drops before final results are achieved. In 1980, the market rose more than 30% but also fell nearly 20%. And 1987 had a crash, but it still finished the year with a positive return. The return in 2011 was also positive, but with a big fall.
On the other hand, negative years also had periods when the market was up a strong amount. The market gained more than 20% at one point in 2008 before it logged the worst performance in decades. We also had a down year in the markets in 2018, but at one point it was up nearly 20%. And during the dot-com crash in 2001 and 2002, markets rose nearly 30% each year before wiping out those gains. Even now, in 2020 with COVID-19, we’ve recovered all but 5% of what the market lost since the February peak.
On a positive note: You can use volatility to your advantage. You can hedge, generate income or even profit.