|Tough Date||Peak Date||Percent Gain||Number of Days|
Yardeni Research provided the statistics for the above table aided by Standard & Poor's Corporation and Haver Analytics.
It's important to remember, this run began at an extremely low level thanks to Chuck Prince and his fellow investment bankers. Although a decade removed from the financial collapse, Main Street investors have long memories of the losses incurred. Those losses were realized if you sold at the bottom. Easy to do because it was not a normal correction. People were scared. The entire global financial system was at risk of annihilation. However, according to Bloomberg, if you bought equities at the previous market peak on October 9th, 2007, you would have doubled your money in ten years if you owned an S&P 500 index fund such as (SPY), (IVV), or (VOO), and reinvested your dividends.
To buttress this phenomenon, go no further than the J.P. Morgan Asset Management Retirement Guide and view the chart on the impact of being out of the market. When examining the 20 year performance of the S&P 500 between 1/1/1997 and 12/31/2016, money invested in the index had a total return of 7.68% annually. This time period includes two major market meltdowns which is probably why it returned less than the historic average of 9.5%. In contrast, if you would have tried to time the market and failed (as most do), your annualized returns would have been only 4% provided you missed the ten best trading days. Total returns decrease to 1.57% if you missed the 20 best trading days, and so on and so forth. At 1.57%, you might as well have been in a savings account to reduce your volatility.
The current acronym investment mangers utilize to underscore the importance of being long equities is TINA (There is no Alternative). Savings accounts and long duration Certificates of Deposit pay muted interest, somewhere around the one percent range give or take a few basis points. Ten Year Treasury Notes are climbing towards 3% yields, but this still pales in comparison to long-term stock returns. This is not very comforting if you are a retiree and require a steady flow of dependable income. My personal preference remains S&P 500, or Total Market index funds. Although subject to volatility, yields of these financial instruments are close to 1.8%, and if the market continues its ascent, you benefit from price appreciation.
Many investors remain concerned about the fast and loose machinations of computerized stock market exchanges. However, automated exchanges have been in existence for 50 years. Some of the increased volatility in the market can be attributed to retail investors themselves, not just the High Frequency Trading and Quant Funds with their unrestrained algorithms. Reduced commissions at discount brokers and tax deferred retirement accounts invite more trading, too. They've turned the market into a big casino. Derivatives only acerbate the matter.
Average Holding Time for Stocks by Decade:
- 1960, eight years, four months
- 1970, five years, three months
- 1980, two years, nine months
- 1990, two years, two months
- 2000, one year, two months
- 2010, six months
The data above stops at 2010, but from the trend, you can surmise holding periods are only getting shorter. I've seen some data that suggests three months is the most recent holding period for individual equities, and ETFs aren't immune from the short-term horizon. Those boring, plain vanilla S&P 500 index funds such as SPDR S&P 500 ETF Trust (SPY) are the preferred trading instruments of speculators globally.
|SPDR S&P 500 ETF Trust||SPY||259.9||31|
|iShares S&P 500 Index||IVV||147.0||313|
|Vanguard Total Stock Market||VTI||90.2||679|
|Vanguard 500 Index Fund||VOO||84.4||376|
|PowerShares QQQ Trust||QQQ||56.1||27|
|iShares MSCI Emerging Markets||EEM||41.2||33|
|iShares Russell 2000 Index||IWM||40.4||23|
All of these Exchange Traded Funds have ample volume and abundant assets under management. The iShares Russell 2000 Index which follows small caps has a scant holding period of just 23 days - a little over three weeks. In contrast, Vanguard Total Stock Market has a holding period of almost two years. Both are excellent investments, but my personal preference is with the more diversified fund which is the total domestic market index. Although some of these ETFs have high turnover ratios, you're not going to get burned if you invest for the long haul.
The Musical Chairs game we're continuously playing in the market may have a ways to go because records are made to be broken. We have approximately three and half years of rising stock prices to surpass the previous enduring bull market of 1987-2000. With the advent of Artificial Intelligence, blockchain, 5G, video and audio steaming, plus new technologies such as Quantum Computing, this market has room to run. It won't be smooth sailing, but even with increased volatility, you're probably going to make money.