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The virtues of patience
If history is any guide, short-term drops in the stock market in the aftermath of crisis events typically have been followed by longer-term rallies. The chart below provides a historical view of several global market crises and how the United States markets fared in the six months following the event.
Managing investments during a market downturn
During periods of economic uncertainty and significant financial losses, it's not unusual for investors to question their current investment strategies. While dramatic market downturns can cause anxiety among even the most seasoned investors, keep in mind that they occur periodically and should not be a reason to abandon a well-conceived, long-term investment strategy. Unfortunately, that decision may significantly undermine investors' ability to achieve their long-term goals. Below are two historical examples for why investors may want to "hold the course."
1 The Dow Jones Industrial Average is used as the measure of stock market performance and is made up primarily of large-capitalization companies that represent a broad spectrum of the U.S. economy and a substantial part of the U.S. stock market's total capitalization.
2 For days after reaction period, one month = 22 days, three months = 63 days, six months = 126 days. The performance of the one, three, and six months later is calculated from the last day of the reaction period.
3 "Stocks" is represented by the S&P 500 Index, which tracks the performance of 500 large-company U.S. stocks. Stocks historically have involved more risk than other types of financial assets. "Cash" is represented by 30-day T-bills. Unlike stocks, T-bills are guaranteed as to the timely payment of interest and principal. Past performance cannot guarantee future results. Investors cannot invest directly in an index. This example is for illustrative purposes only and does not represent the performance of any particular investment.
4 Analysis: T. Rowe Price. Data source: Monthly S&P 500 Index. Declines of 20% or more from previous market peak, based on month-end index levels. Past performance cannot guarantee future results.
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Brian Rogers, Chief Investment Officer and Chairman of the Board
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