What if I invest money in the stock market and something “bad” happens?
That’s a great question! Why? Simply because, if you invest over a long enough period of time, something “bad” always happens. Actually, probably lots of bad things. On the other hand, studying history (this is a University, after all) can provide some very helpful perspective. Consider this:
In December 1941, when the Japanese bombed Pearl Harbor in a surprise attack that triggered the U.S.’s entrance into World War II, you might think that would be bad news for the market. And it was. The market dropped more than 6% over the next few days. Yet, one year later, with nearly the entire world at war and not much going well for the U.S., the market was up over 16%.
Or, in 1962 during the Cuban Missile Crisis, with the U.S. and the Soviet Union on the brink of nuclear war (and with our kindergarten class literally training to hide under our desks), the market initially fell almost 10%. One year later, the market was up 41% (though admittedly, avoiding nuclear annihilation was probably viewed as a positive development).
In 1974, when President Nixon was forced to resign in the midst of the Watergate scandal, an event unprecedented in history, the market fell 13% over the next few weeks. One year later? The market was up over 30%.
In 2008, when the collapse of Lehman Brothers triggered the infamous 2008 financial crisis requiring the government to bail out our entire banking system, the market fell 39% in a few months. One year later, the market rebounded over 48%.
And in 2020, a worldwide pandemic unlike any seen in 100 years, caused economies around the globe to tank, the S&P 500 average dropped approximately 35% in a month only to fully recover less than six months later.
Name the crisis–Brexit, the Kennedy assassination, the 1987 stock market crash, 9/11, all the same story. After an initial market fall, patient investors were rewarded with a market rebound in a relatively short amount of time.
The lesson for investors should be obvious. It’s never clear sailing as far as world history is concerned–bad things happen all the time. But here’s the key. Over the long term, the best plan for investors has been to remain patient–and invested!