If you have turned on the news recently, you might be aware that the stock market is down. But what does that mean? Is it a recession? Should we be worried? This month I’m writing to let you know why you can relax.
Since July 2001 (somehow that was 20 years ago!), there have been two notable dips in the stock market. The first occurred between December 2007 and June 2009 during the subprime mortgage crisis; the second occurred at the beginning of the pandemic and lasted from February 2020 to April 2020. Here’s how those two events look on a 20-year chart of the daily price of the Vanguard Total Stock Market Index (symbol VTI).
The Data
So how bad did it get? In 2009, the share price of VTI dropped as low as $33.66 per share; a drop of 57% from its previous high in 2007 ($78.25 per share). In 2020, shares dropped as low $113.65; a drop of 31% from its previous high two months earlier ($164.67 per share). Here in 2022, the share price of VTI has dropped as low as $183.02 per share; down 25% from its 2022-high of $244.05 per share.
Reflection
At our worst in 2022, the VTI share price of $183.02 represents an 11.1% increase over the high share price we dropped from in 2020. That’s right: At its worse this year, the stock market represented a value 11.1% higher than the one we were celebrating in April 2020 as stocks were booming just two years ago!
Now let’s go back farther: Let’s say you had terrible luck, and invested your life’s savings into the total stock market on its worst day in the last 20 years. That would mean you would have purchased shares at $33.66 per share in 2009; today those shares would be worth $183.02 per share. In this worst case scenario, a $100,000 investment would be worth over $540,000 today; a nearly 14% annualized return.
So while it can be hard to endure in the moment, remember the cliches: Time in the market is better than timing the market; the only people that get hurt on a roller coaster are the ones that jump off. Historically, we have seen the total stock market offer an annualized return of 8.2%. So while some years will be better, and some years (read this year) will be worse, those who stay the course and continue contributing regularly to their investments will be just fine in the long run. Stay calm and carry on!
