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5 Historical Stock Market Facts That Can Help Boost Your Returns

Investing is tough, right?  Wrong!  Investing is like anything else – it’s only tough if you don’t know what you’re doing.  We’re here to help you along the way and I’ve outlined 5 key stock market facts that will help you in your investing journey!

1 – If you invested in the S&P 500 the year after the 10 worst years since 1950, your average return would be 7.58%.

Do you know what this tells me?  It tells me that you shouldn’t sell after a bad year of investing and if anything, you should buy more.  This really is showing the importance of buying low and selling high.  If you would’ve sold at the end of these years your average return would be -18.41%! 

I always talk about the importance of staying in the market and not selling when bad things occur, but the chart below really shows why.  Yes, some years continue to be negative as well, but eventually the tide will turn, and you’ll start to reap the rewards of the stock market. 

2 – Average Returns for the S&P 500 since 1950 are 9.02% and this doesn’t include dividends!

If you include dividends, the average return is 12.61% and the Compound Annual Growth Rate, or CAGR, is 11.17%!  What does this tell me?  Well, it tells me two things:

1 – You need to be patient in the market.  Don’t get burnt out after a bad year because things are likely going to turn around, as I’ve shown in the above example.

2 – When you have a great year with your investments, don’t just immediately assume that the market is about to have a correction.  11% returns are the AVERAGE for the last 70 years! 

We always talk about making sure you have the ability to stomach the bad years, so you don’t sell low, but equally as important is not selling too early because that can have equally as bad of an impact on your total returns.

3 – People today are less likely to invest than they were 10 years ago

I broke down some stats about people showing the likelihood that they invest from an awesome article by Gallup and a few things stood out to me:

1 – nearly every category is less likely to invest now than they were from 2001 – 2008. 

Why is that? 

I think a lot of people are scared from 2008 and made the choice to sell and not worry about investing anymore.  Unfortunately, the people that did that locked in their losses. 

If you bought at the highest S&P 500 price in 2007, which was $1,565.15/share and sold at the lowest price in 2008, which was $752.44, you lost 52% of your money. 

If instead of selling you simply just held onto it, you would’ve made 94% on your initial investment as the S&P 500 is now at $3038.53.  Don’t let recent history scare you from massive future gains.

2 – The more you make, the more likely you are to invest.  This isn’t surprising to me, but it really makes me sad. 

If you don’t make a lot, then you need to invest even more than the person that has a higher income!  Per CNBC, 53% of non-investors say they don’t invest because they don’t have the money.  That’s BS.  You’re likely not in a great financial situation, so save as much as you safely can and invest that money into the market to set yourself up for your retirement. 

Even if you can only save $50/month that will help!  $50/month for 30 years in a shoebox is worth $18,000.  $50/month invested at an 8% CAGR is $75,015.  Which would you rather have?  Buck the trend! 

4 – September Slump

Since 1950, September has declined .7% on average every September.  This is truly amazing in my eyes.  There really is nothing truly attributable to this decline that makes it occur so commonly. 

Some people have said it because vacationing investors will come back to work and sell the positions that they’ve been intending to sell.  I’ve also heard that many mutual funds fiscal year will end their Fiscal Year in September, so they’ll sell their losing positions. 

Personally, I think it’s because football comes back in September, so people forget to invest their money!

5 – Historically speaking, a stock market correction will occur every 2 years, per Yardeni.com. 

A “stock market correction” is defined as a market decline between 10-19%.  This is an interesting stat to know for two reasons:

1 – stock market declines are common, and they can last for a couple months, so don’t freak out when one happens.  If you freak out and sell, you’re likely selling at the low point and will miss out on the swing back up.  Refer to my previous point in the article about this 😊

2 – if the market seems like it’s getting a bit overvalued, maybe it might make sense to have an “opportunity fund”.  This could be some other sort of savings that you could convert to the stock market if there ends up being a stock market correction. 

For instance, let’s say that you get a bonus at work and don’t know what to do with it.  Maybe you invest some of it now but also sit on some of it in case some stocks, or maybe even the market, have a bit of a correction and then you can buy them while they’re “on sale”.  Don’t sit on this money forever, though, as there’s always a chance that you might not see the market below its current price. 

It’s going to be a judgment call but always remember that at the end of the day, time in the market beats timing the market.  I’m only using this as a theoretical because it’s EXTRA money from a bonus or from an Opportunity Fund – aka, you’re not slowing your normal investing at all.

So, 5 quick takeaways from this article:

  1. Don’t sell after a bad year
  2. Don’t sell after a good year
  3. Use investing to get ahead
  4. September might be a short-term opportunity to boost your investing for a month
  5. Be opportunistic of stock market corrections

If you do these five things, then it’s really going to be hard to not be successful when investing.  Of course, every rule has times where it’s not going to be 100% fool proof, but these all have a track record of occurring regularly so if you can use some of these facts to further develop your toolbelt, in addition to the stock evaluation tools that we’ve taught you and in combination with Andrew’s Value-Trap Indicator then you, your family, and your retirement will be better off for it!