In a recent article titled Rethinking Risk, Jack Raines had this to say about today's investing environment:

When prices fall, it often feels like risk is rising.

The irony is that it's the opposite that's true. Generally speaking, risk falls as prices fall.

To this point, Raines said,

And right now, it's clear that risk is the main thing on people's minds.  

This being the case, wary investors seem eager to lock in fixed returns at a time when future returns for global stocks are more attractive than they have been in years.

I think it's wise to question whether the decision to sell now (to lock in fixed returns) is likely to be prudent or foolish given a little time. 

There's plenty of historical data to support the stay-the-course mentality.

For example, since 1950, the average 5-year cumulative return for U.S. stocks following a decline of 25% from all-time highs is ... +83.3%! (Source: Ben Carlson)

And that's just the average. Which means some returns were much higher.

But because I'm sure you're curious...

...the worst 5-year return was +21.5%!

Comparatively, the current 5-year Treasury rate is 4.35%.

Over 5 years, that's a cumulative return of +21.8%, which is on par with the worst historical experience for stocks.

With inflation still high, the question we should be asking ourselves is:

As fearful souls panic and stuff their money under the mattress, I expect many of them to experience seller's remorse once they have the benefit of hindsight.

Staying the Course

I remain emphatic about staying the course because every bear market in history has been followed by a strong bull market.

Why would this one be any different?

That said, I understand it's uncomfortable because, during a market downturn, it always feels like the higher probability is that things will get worse.

And that may be what happens.

But we aren't investing for days or months...

...we're investing for decades. (Yes, even those who are in retirement!)

Keeping this perspective in the forefront of your mind is the key to a successful investing experience.

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Stay wealthy,

Taylor Schulte, CFP®