This week, Gabe Adams, CFP®, MSPFP, reminds us why it’s important to maintain a long-term, disciplined approach to investing even when the short-term outlook may be uncertain.


Welcome to the Weekly Market Update. Markets displayed more volatility this week after the June inflation report showed the Consumer Price Index rose 9.1% on a year-over-year basis. This was the fastest increase in more than 40 years, driven in large part by the cost of gas, shelter, and food. There seems to be no shortage of things to worry about, and now there have been whispers that the Fed could boost rates by up to 1% at their July meeting to combat surging inflation. With that, even though the short-term outlook may be uncertain, it’s important to maintain a long term, disciplined approach when investing. I’m going to highlight this by reviewing a few charts.

The Wall of Worry

It may seem like we’re in unprecedented times, and in some ways we are. The future will never be exactly like the past, but as Mark Twain once put it, “history never repeats itself, but it does often rhyme.” The market is always climbing the “wall of worry,” even if each worry itself may be different.

When looking at our graphic, going back to 1970 we’ve had dozens of events along this wall of worry that each caused plenty of market turmoil in its own right. And market turmoil is quite common, with bear markets occurring on average every three to four years or so. Although our chart doesn’t go through 2022, one could easily imagine an event along the lines of “COVID, Inflation, and the Ukraine War.” However, if you had invested $1 in the world stock index in 1970 and stayed the course, you would have ended with $80. By maintaining a disciplined approach and a long-term outlook, that equates to an 8.9% annualized return despite the ups and downs.

The Bull Versus the Bear

As investors, we can feel the pain of losses more acutely than the pleasure of gains. This can lead to loss-aversion behavior, in which we may try to avoid the stinging pain of loss to the point where we miss out on the rewards of gains. When looking at bull and bear market cycles, it’s evident the bull rewards far more than the bear takes away. To look at a couple of examples, a downturn in 2008 resulted in a 51% cumulative loss for the S&P 500 over 13 months. However, the subsequent bull market lasted for 131 months, resulting in a cumulative gain of 529%! More recently, the COVID market decline of 2020 resulted in a 34% cumulative loss in just one month. That was then followed by a return of 70% over the next nine months. Importantly, we can see in our chart that most of these bear markets cycles have been much shorter than the bull market cycles.

There is no doubt that market downturns can be painful. However, if trying to avoid short-term losses, you may miss out on exponentially larger gains. For an investor thinking long-term and sticking to a disciplined approach, riding out a market downturn would lead to reaping those rewards, likely improving the odds of success.

The Odds Are in Your Favor

During periods of heightened volatility, you may hear that the market is a game of chance. However, if we really delve into the odds, we find this couldn’t be further from the truth.

To illustrate, let’s take a look at your historical odds of success in both a casino and the market. In blackjack, your odds of winning are roughly 48%. If you’re more of a poker player, those odds stand at close to 47%. A slot machine will give you odds of success at about 40%, or worse than a coin flip. And if you’re like me, your odds are probably much lower!

Now, if we look back at the Dow Jones over the last 120 years, we see a markedly different picture. When looking at one- or three-year time periods, your odds of positive returns are relatively good at 73.5% and 85.7%, respectively. However, the longer we zoom out, we see that the odds historically become overwhelmingly strong. That said, investing over a 15-year period resulted in positive returns 99.9% of the time! By thinking long-term and staying disciplined, you can harness these odds in your favor.

So, what does it all mean? Markets remain volatile, and we’ve seen a difficult environment in 2022. But even though this time, and every time, is different, we’ve been here before. The market has consistently been able to climb the wall of worry, and bull markets have rewarded investors far more than the bears have taken away. Ultimately, by remaining disciplined and using a long-term approach, you greatly improve your odds of success.

Thanks for listening in, and please join us next time for the Weekly Market Update.

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