Putting the hard-earned money into the stock market is indeed a daunting thing, especially in times of market volatility, and the fear of a plunge often makes experienced investors make very stupid decisions.
But Visual Capitalist columnist Jeff Desjardins reproduces the US S&P index's yield data from 1872 to 2018 through the chart of The Measure of a Plan, and said long-term holdings appear to be a safe and reliable investment strategy.
Desjardins said that the backtest data reproduces the S&P Composite Index from 1872 to 1957 and the S&P 500 Index after 1957, andDividendReinvestment and inflation have been adjusted.
(S&P index 1872-2018 different time span yields, source: The Measure of a Plan)
As can be seen from the above figure, there is a very significant volatility in the calculation of the income in the natural year cycle. In fact, if you randomly choose to enter the market in one year, there is a high probability that you will suffer losses. However, when the investment cycle is raised to 5 years, 10 years, or even 20 years, the loss situation is more clearly controlled. In particular, when the income cycle is raised to 20 years, the result of no first-phase investment is a loss.
Why is long-term investment so important?
Desjardins said that in the 146 years of statistics, the single-year return was as high as 31%. As you can see from the chart below, in the history of US stocks, even in such a bad year in 2008, it is not uncommon for a huge decline.
(The distribution of single-year returns in the history of US stocks, source: The Measure of a Plan)
In the past 146 years, the year in which the loss per year exceeded 20% was only 10 years, which is almost a quarter of the income of more than 20% of the year. This is the main reason why “time” can be exchanged for “space”. Desjardins believes that although past data cannot guarantee future trends, for long-term investors, there is really no need to be afraid of short-term fluctuations.
(Article source: WEEX)