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Investing Basics

Resources: Investing Basics: Volatility: The History of Volatile Markets

The greatest stock market declines occurred in the 1930s during the Great Depression. Yet the market recovered stronger than ever in the 1940s. Since that time it has generally risen steadily in value.   

Historically, market downturns have been momentary sputters in the economy.

What about social events that have threatened the fabric of American life? Pearl Harbor. The Kennedy Assassination. The 1991 Gulf War. September 11th. All of these tragic events produced a sudden drop in the stock market. But in each instance the markets recovered, and relatively quickly.

The chart below shows that the worst 12-month stock market declines have been followed by periods of even greater recovery. The last three columns reveal that bear markets have typically been followed by periods of significant recovery. Therefore, investors who maintain a long-term perspective may have an opportunity to reap the greatest rewards.

Historically, Markets Have Recovered After Sharp Downturns

Returns for the S&P 500

  • The trailing 12-month returns were sorted from worst to best. Adjacent 12-month periods were not considered. As a result, the 12 months ended February 2009 had the lowest return in the data set, so the 12-month periods that overlapped with February 2009 were not considered.
  • The trailing 12-month returns are compounded total monthly returns for the S&P 500 as reported by Wilshire Compass. The 5- and 10-year returns are annualized total returns. Investors cannot invest directly in an index.
  • This chart demonstrates historical results. There is no guarantee of future positive returns after a prolonged stock market downturn.

Past performance is not a guarantee of future results.

A mutual fund's share price and investment return will vary with market conditions, and the principal value of an investment when you sell your shares may be more or less than the original cost.

Asset allocation/diversification does not guarantee a profit or protect against a loss.




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A mutual fund's share price and investment return will vary with market conditions, and the principal value of an investment when you sell your shares may be more or less than the original cost.

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