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Keep History in Mind When Stocks Get Volatile

Stocks had the worst first half of the year in over 50 years: The S&P 500 fell 20% in the first six months of 2022. While no one knows how the stock and bond markets will unfold over the coming months, keep history in mind.

1 Bear markets happen but they tend to be short-lived. A bear market in U.S. stocks, which is defined by a decline of over 20%, is a normal occurrence. However, they tend to be shorter than a bull market (defined as a market with gains of more than 20%). In fact, the average length of a bear market has been 344 days, or approximately 11 months, compared to 1,102 days, or about three years, for the average length of a bull market.1

2 Let time be on your side. We believe the best way to view today’s market is with a long-term perspective. Investment portfolios are constructed with the expectation that there will be times when prices fall. Yet, when you take into consideration that you may not need that money for several years, or decades, that money can stay invested and benefit from the probability of positive returns.

Reasons for Early Retirement - Jemma FinancialIn any given 1-year rolling period since 1970, approximately 80% of the time stocks have experienced positive returns. Yet, odds of a positive return increase the longer you remain invested. In fact, looking at 10-year rolling returns since 1970, 95% of the time stock returns have been positive. The longer you stay invested, the greater the likelihood that positive returns will follow.

3 Market volatility often presents a buying opportunity. Strong performance has historically followed market downturns. Looking at the previous five times when the market has declined 15% or more in the first half of the year, positive performance resulted. In fact, the S&P 500 rose an average of nearly 24% in the second half of the year all five times.2

Rather than hastily make decisions based on short-term market noise, revisit your long-term financial plan. A Jemma Financial Advisor can help you make any necessary adjustments to your portfolio based on these events.

1. “Stock Market Briefing: S&P 500 Bull & Bear Market Tables,” Yardeni Research, 6/3/22. 2. “The Dow just booked its worst first half since 1962. What history says about the path ahead,” Marketwatch, 7/2/22.

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