The stock market comes with lots of bumps in the road. While U.S. stocks generally generate positive returns, it also experiences many declines along the way.

This chart below from JP Morgan’s Guide to the Markets does a nice job illustrating this. Going back to 1980, the chart shows each year’s annual return in gray and its max intra-year drawdown (a decline from its high) in red.

Annual returns and intra-year declines

Here are the major takeaways from this chart:

1. You Can Get Smoked in the Short Term

No one can predict what will happen in the short term. In each year, the stock market has experienced an average drawdown of -14%. There are many instances of 20% drawdowns like the one we’re experiencing now.

2. The Market Tends to Be Positive

Despite average intra-year declines of -14%, the annual returns were positive 32 of 42 years.

The main reason stocks go up over time is because the economy grows and earns more money. In the long run, things almost always work out for the better.

3. Returns Are Anything But Average

Since 1928, the U.S. stock market is up 10% per year. When you invest in the stock market you don’t simply get 10% year in and year out.

You get some combination of huge gains followed by losses. Over the last 95 years only 18% of returns have been between 5% and 15%.

4. Stock Market Can Recover Huge Loses Quickly

In 1987, 2009, and 2020 the stock market had larger drawdowns than what we have experienced so far in 2022, yet the market closed higher each of those years. Not saying this will happen, but I wouldn’t be surprised if we have a stronger second half of the year.

Bottom Line
Declines in the stock market are a good thing if you are going to be a net saver over the next few years. If you are continuing to save you can now buy the stock market at prices 20-30% lower than they were just 6 months ago.

Many people think bull markets are how you get rich but true wealth is built during bear markets. Could things get worse? Yes. But every bear market has been a buying opportunity for investors who were patient.

George Maroudas


Twitter @ChicagoAdvisor

Sources and Disclaimers:

Stock market represented by the S&P 500 index.
Annual return for U.S. Stock Market 9.8% from
Chart from JPMorgan Asset Management’s Guide to the Markets.

Stock investing includes risks, including fluctuating prices and loss or principal. This information is not intended to provide specific advice or recommendations about any stock nor is it intended to be a recommendation to buy, sell or hold any stock investment. We suggest speaking with your financial professional about your situation prior to investing.

Please consult your financial advisor regarding your specific situation. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. All investing involves risk including loss of principal. No strategy ensures success or protects against loss. This information is not intended to be a substitute for specific individualized tax advice. The Standard & Poor’s Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.