I am so old, I can remember the day that Dow Jones Industrial Average permanently broke the milestone value of 1,000. It was in December 1982 – when I was still in high school. I was enough of a business & investing geek even then to recall reading about it in the newspaper.
Now, with the DJIA pushing almost 35x that landmark, I’m astounded to see that the market has grown +9.58% on average every year since that time. Add in dividends and you have double-digit returns on average over four decades. Truly a golden age!
Yet we all know that the market doesn’t move straight up. There have been a lot of bumps in the road since that time, which got me thinking bout volatility of returns. I ran across this Vanguard chart that gives us long view …
Starting in 1980, it shows the 30-day volatility in the S&P 500. Your eye is quickly drawn to the few scary peaks, but overall the market is no more volatile over the last 5-10 years as the previous 30. Behind the green line, you see the S&P 500 significantly gaining in value, despite the double-bump between 2000-2010.
I was pretty heartened by this chart. Crises are going to emerge, but the market has gotten back to its growth trend pretty quickly. Volatility tends to come in sudden big waves, but then those waves subside pretty quickly.
I suppose as the market is bigger and more diversified we should expect more stability. Still, it’s good to see it actually behaves that way. Only the good lord knows what the next 10 years will bring – likely a big downturn or two – but hopefully businesses will get back on track for the long-term. Just as they have over the last 40 years.
How Do You Interpret This Trend?
Image Credit: Pixabay
MrFireStation 
Chief, I try to keep my “eyes on the prize.” Focus first on the destination. Focus second on the compass. Keep a steady hand on the tiller. Waves will come and go. The doughty sailor sails on to reach the far shore despite weather.
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Yes, I agree. Still, despite the occasional storm, I am happy to see the day-to-day waters getting a bit less choppy and smoother sailing.
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To quote Dana Carvey doing George Bush Sr., “stay the course”. But also be diversified. If you can’t handle a steep 30% downtown, keep less than half of your nest egg in securities. My biggest lessons were taught to me when I sold out too early such as selling Amgen in the late 80’s. Also if you have no debt and have income sources such that you don’t need your nest egg, your nest egg has an unlimited investment horizon to outlive you and provide security for your heirs or beneficiaries
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That is an interesting thought, Dave. I had never thought about what percent of our nest egg we don’t really need. As you say, it has an unlimited investment horizon!
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I never thought of myself as a crusty old seasoned investor, but I guess we are becoming pretty experienced investors by the looks of this chart. I’ve experienced every one of those spikes (painfully I might add!) on that lengthy timeline, and I suppose they’ve made me a better investor as a result. It certainly solidifies my thoughts on long term investing and proper diversification through low cost index funds. Growth comes, it just takes time, persistence, and an ability to ignore the swings. I am pretty conservative and have a much lower exposure to equities these days, but it will gradually increase again as I move past my sequence of returns risk period. The chart’s volatility also explains my affinity for real estate as another diversification, given my conservative nature! 😉
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The only speak on the chart that I missed during my working years was the 1987 black Monday crash. I remember a college classmate telling me about it that afternoon – that the market was down 500 points – and I didn’t believe him! I thought the market can’t drop that much in one day (23%). How wrong I was!
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I think your page deserves a follow 👍🏼 thoroughly enjoyed this great read. When it comes to index’s, I prefer to invest some money into them every week. (Any investor, beginner or otherwise would benefit from doing this in my opinion)
If there comes a time where we see a 5-15% decline, I invest 3x as much as I normally would, anything over 15%, I’d invest as much as I can afford to during that period of time. Worked brilliantly during 2020 that’s for sure
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Welcome, Wild Trader! It sounds like you have a great approach to ‘tripling down’ during the markets low spots. I agree, that would have worked brilliantly in 2020 (and really any time in the last 30 years!). I’d appreciate a follow, absolutely! I’m not sure how that works on a phone, but the ‘home’ page and ‘about’ page have WordPress and E-Mail follow boxes on the right side of the page on a computer or iPad. https://mrfirestation.com/home/
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Just followed you on here now. Just clicked on your profile and it gave me the option to! You have a lot of interesting ideas on your page! I’ve only recently started blogging about all things finance so I’m pretty new to all of this!
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Are you in Singapore, by chance? I just saw a bunch of clicks from there. Really cool place.
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No no, I’m from the United Kingdom!
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The UK is a favorite too. We were in Bath, York, and up to Scotland a few years ago and my wife would like to go back soon. Her family is from Scotland.
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Oh nice man! I live in the south-east of England. I’m originally from Germany, looking to move back in the next few years
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I’ve never been to Singapore before, it’s a place I’d like to visit though!
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I think your page is worth to be followed. Very informative to the mass at large.
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Thanks! 😃👍🏻⭐️
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