2022 was an absolutely brutal year for investors.
The hits came from all directions. Stocks dropped… bonds dropped… alternatives like gold went nowhere… and anything speculative fell 50% or more.
If you’re feeling uneasy going into 2023, I get it. But I want to warn you…
Now is not the time to give up on your investments… specifically on stocks.
The market does lose money from time to time. But according to history, it’s rare for negative years to stack up. And as we’ve covered many times lately, that means markets are likely to rebound this year.
Let me explain…
Yes, 2022 was uniquely painful. That’s because nearly everything – including bonds – went down, right alongside stocks. But the stock losses themselves aren’t so unusual.
The S&P 500 Index has had 19 losing years since 1950. That means stocks typically see a down year every four years.
Even still, the good times more than make up for those occasional bad years. The average annual gain in the stock market over that period was 9.1%. And more important, consecutive losing years didn’t happen often.
In fact, they’ve only happened twice (including one run of three losing years) since 1950. You can see it in the chart below…
Stocks dropped two years in a row in 1973 and 1974. And they dropped for three straight years during the dot-com bust.
As you can see above, stocks tend to end up higher the year after a loss. That has happened 83% of the time… And the average gain increased from 9.1% to 15.3%.
Even better, the four largest annual gains since 1950 each happened after a losing year. Take a look…
These are massive returns. They average out to an incredible 37% gain.
When the market falls, it paves the way for future outperformance. And that means the years that follow have the potential to be some of the best on record. This idea might seem too simple to be true. But the consistency through seven-plus decades of data proves it.
Stocks rarely fall for two years in a row. That’s because bear markets can’t last forever… even if it feels like they will in the moment.
History shows stocks are likely to rise in 2023… And it could be a banner year.
You’ll still want to wait for the trend before going all-in. But that time is approaching quickly. Make sure you’re ready to act when it comes.
Good investing,
Brett Eversole
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Source: Daily Wealth