The Importance of Staying Invested
Ibbotson® SBBI® 1926–2019
Investing in turbulent markets is unsettling. No one likes to lose money. Investors often wonder if they should sell their investments to stem further losses, or sit on the sidelines until things improve. But in most cases, particularly for those who have a long time horizon until they will need to touch their money, the wisest move is simply to stay the course. Imagine you were living through the Spanish flu and World War I -- you might be scared off from investing in stocks. But as the chart below shows, someone who invested in the stock market would have done better than someone who had invested in any of the other asset classes.
A 94-year examination of past capital market returns provides historical insight into the performance characteristics of various asset classes. This graph illustrates the hypothetical growth of inflation and a $1 investment in four traditional asset classes from Jan. 1, 1926, through Dec. 31, 2019.
Small and large stocks have provided the highest returns and largest increases in wealth over the past 94 years. As illustrated in the image, fixed-income investments provided only a fraction of the growth provided by stocks. However, the higher returns achieved by stocks are associated with much greater risk, which can be identified by the fluctuation of the graph lines.
Things To Know
- Small and large stocks have provided the highest returns and largest increases in wealth.
Government bonds and Treasury bills are guaranteed by the full faith and credit of the U.S. government as to the timely payment of principal and interest, while stocks are not guaranteed and have been more volatile than the other asset classes. Furthermore, small stocks are more volatile than large stocks, are subject to significant price fluctuations and business risks, and are thinly traded.
About the data
Small stocks in this example are represented by the Ibbotson Small Company Stock Index. Large stocks are represented by the Ibbotson Large Company Stock Index. Government bonds are represented by the 20-year U.S. government bond, Treasury bills by the 30-day U.S. Treasury bill, and inflation by the Consumer Price Index. Underlying data is from the Stocks, Bonds, Bills, and Inflation (SBBI®) Yearbook, by Roger G. Ibbotson and Rex Sinquefield, updated annually. An investment cannot be made directly in an index.
