What goes down in the Market must come up

In times of uncertainty, one of the most common questions revisited day after day, is to continue to fight or take flight. And by that, I really mean whether an investor should sell off or continue to stay vested and even pump in more money.

The S&P 500 continues to remain one of the best reminders on why long-term investment works and why as investors we should spend time in the Market rather than timing the market.

Widely regarded as the best single gauge of large-cap U.S. equities, there is over USD 9.9 trillion indexed or benchmarked to the index — one of the most commonly followed equity indices and one of the best representations of the U.S. stock market.

For the US, it had faced an uneventful past 10 years. At least 30 significant events to the market took place, coupled with the resulting ups and downs in price movements. COVID-19 is the latest event to hit (on the far right), leading to the market drop which we are experiencing today. However, the general trend is an upward continuation.

If we relook from a much longer perspective over 148 years, historic data and trends don’t lie. Major events still caused dents and depressions, but holding on for the longer term will still see a positive accumulation of wealth for investors.

This is so without even taking into account regular investment or reinvestment of dividends yet. The above chart shows the delta between an investor reinvest his dividends (green) versus one who doesn’t (blue). Reinvested dividends forms a substantial role in making wealth grow. The S&P 500 index today is about 17.9 times the 1980 value. With reinvestment of dividends, the same dollar amount would have grown 52.9 times instead.

What we are trying to address is the panic selling which we are witnessing in the retail market and the other extreme, which is the Fear Of Missing Out (FOMO). Staying vested for the long-term, buying on dips and getting a discount on undervalued stocks and ignore the noise of the crowd — investing should be boring as per the rules of engagement for Investing, and only by it being so, can a long-term investor continue to stay on top.


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