Market volatility is normal, and intra-year declines are common.
If we experience sharp, sudden downside in 2020 – remember, it’s just how equity markets work. 75% of the time, the market recovers all intra-year declines and actually posts positive returns. I make the point a bit clearer in the table below.
See below for a year-by-year in this bull market. I have detailed the intra-year declines (how much the S&P 500 fell during the year) versus the S&P 500 actual returns for the year.
As you can see, volatility is present in just about every year, and it’s often significant. But that hasn’t stopped the bull market from continuing. In fact, I look at intra-year declines as an opportunity to buy equities.
On average, an investor should expect a -10 to -15% decline during any given year, as well as the probability that the S&P will recover and even reach new highs in 3 out of 4 of those years.
The S&P 500 is up 75% of the time, and when I see a decline in the year, I personally buy equities. By purchasing equities after a pullback, investors end up buying low, and 75% of the time end out with greater returns. Investors have ended up with positive returns 100% of the time when looking out over a 15 year period.
| Year | Intra-Year Declines | S&P Return for the Year |
| 2009 | -28% | +23% |
| 2010 | -16% | +13% |
| 2011 | -19% | +0% |
| 2012 | -10% | +13% |
| 2013 | -6% | +30% |
| 2014 | -7% | +11% |
| 2015 | -12% | -1% |
| 2016 | -11% | +10% |
| 2017 | -3% | +19% |
| 2018 | -20% | -6% |
| 2019 | -7% | +31% |
| Average Intra-Year Decline | Average Return for those same years | |
| -13% | +13% |
A patient, steady approach has paid off over the last decade.
Looking ahead in 2020, remember the downside that is not only possible in any given year, but probable. As you can clearly see, each year brought downside volatility with it, sometimes small, sometimes quite big.
But it’s better to keep your cool and ride through the storms versus trying to time the market. Remember this in 2020.
Matt Ward, CFP®
