Volatility in Equities - A Longer-Term Perspective Helps

Stock Market When investing in equities, it is very helpful to view volatility from a long-term perspective. As illustrated by the charts below:

  1.  the longer an investor holds stocks, the more likely the investor receives an overall positive return. (For example, the S&P 500 had a positive 1 year return 76% of the time and a positive 10 year return 97% of the time.)
  2. the longer an investor holds stocks, the narrower the range of returns is. (For example, for 1 year holding periods, the range of returns is approximately -39% to + 52% for the S&P 500. For 10 year holding periods, the range of returns is approximately -1.25% to +13.5%.)

One-year holding periods (Jan. 1, 1937–Dec. 31, 2018)

Stocks were up 76% of the time—62 up periods, 20 down



Five-year holding periods (Jan. 1, 1937–Dec. 31, 2018)

Stocks were up 90% of the time—70 up periods, 8 down



Ten-year holding periods (Jan. 1, 1937–Dec. 31, 2018)

Stocks were up 97% of the time—71 up periods, 2 down


Data Sources: Morningstar and Hartford Funds, 2/19. Equities are represented by the S&P 500 Index. The Index is unmanaged and unavailable for direct investment. For illustrative purposes only. Past performance is not a guarantee of future results. From Hartford Funds “Client Communications – 10 Things You Should Know About Stock Market Volatility”


Historically, the equity markets have rewarded patient, disciplined, long-term investors. While there have been periods of negative returns and periods of heightened volatility, the general trend in the equity markets is upward (see chart below.) While no-one likes sitting through downturns, the longer you are invested, the less significant the downturns become, and the more likely you are to receive positive returns. 



In US dollars. US Small Cap is the CRSP 6–10 Index. US Large Cap is the S&P 500 Index. Long-Term Government Bonds is the IA SBBI US LT Govt TR USD. Treasury Bills is the IA SBBI US 30 Day TBill TR USD. US Inflation is measured as changes in the US Consumer Price Index. CRSP data is provided by the Center for Research in Security Prices, University of Chicago. S&P data © 2018 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. Long-term government bonds and Treasury bills data provided by Ibbotson Associates via Morningstar Direct. US Consumer Price Index data is provided by the US Department of Labor Bureau of Labor Statistics. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is no guarantee of future results. Source: DFA


As illustrated by this chart below, market timing and active management tend to be detrimental to investor returns.

Dalbar QAIB 2018

  Source: Dalbar 2018 Quantitative Analysis of Investor Behavior




Taking a longer-term view when evaluating the volatility and returns of equities reduces the perceived significance of periods of negative returns. Long-term equity investors, who are patient and disciplined, are rewarded by the financial markets with positive returns that outpace inflation significantly, and they usually outperform those who try to time the markets, especially over longer periods of time. Volatility is part of the equity markets and negative returns are common. However, the longer your holding period is, the greater your chance of success.

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