Bear Mountain Capital Inc.

Invest for the Next Decade, Not the Next Quarter

| March 26, 2025

Behavioral Finance | Economy | Portfolio Management

The beginning of a stock market selloff feels terrible—there’s a palpable tenseness and nervousness in the air. Intuitively, we know that selloffs happen, but our emotions and fear don’t care about market history, context, or what the data tells us. What if this time is different? What if we’re on the verge of something catastrophic? After all, every market downturn, whether a correction, pullback, or full-blown bear market, had to start somewhere.

At the time of this writing, investor sentiment is teetering between bullish and bearish. By some accounts, there is an ‘extreme fear’ in the market and the news cycle has become increasingly negative. Is it possible we’re on the verge of a significant downturn? Sure, it’s possible. Is it highly probable? That is difficult to know. Is it predictable? No it is not.

Here’s a question I’ve been asking myself lately – will stocks be higher 10 years from now? I believe it’s highly likely. It’s possible that I could be wrong, as it’s happened before (stocks being lower and me being wrong ;)). But, at the end of the day, should we make significant financial and investing decisions based on low probability events? No, we should not.

Let’s get into it.

What Market History Teaches Us

Whether it’s a pullback (a decline of 5-10%), a correction (10-20%), or a bear market (20% or more), stock market declines are a normal part of investing. In fact, going back to the 1980’s, the S&P 500 has averaged an intra-year drawdown of approximately –14% a year. During these corrections, we as investors, can feel awful.

When markets slide, it’s natural to become hyper-focused on daily price movements and lose sight of the bigger picture. But, we must do our best to remain steadfast and focus on the long-term. For the sake of this post, let’s define “long-term” as 10 years or more – looking at historical returns over different 10 year rolling periods will reinforce the importance of maintaining this perspective.

Below is a summary of rolling 10-year returns: the last 55 years for U.S. and international developed markets, 27 years for emerging markets, and 40 years for investment-grade bonds. This data highlights how often returns have been positive over the long run.*The difference in date ranges is due to lack of index return data. See source data at the bottom of this post.

Takeaway: When looking at rolling 10-year periods over the last 55 years, the S&P 500 experienced positive returns 96% of the time. International developed and emerging market stocks did not experience a negative 10-year period. Read that again…

What if we were to look at individual years instead of 10-year periods?

US: In the last 55 years, the S&P 500 has finished the year positive 80% of the time. Meanwhile, positive 20% return years are more common than you might think – they’ve happened 38% of the time.

Market declines of more than 10% are uncommon, they’ve happened about 11% of the time. Market declines of 20% or more are rare, they’ve happened 5% of the time (1974, 2002, 2008).

Intl/EM: The US market has led international markets, however, there are periods where international markets significantly outperformed the US. It’s also interesting to see the risk and reward relationship between US, international developed, and emerging markets. Often, international developed and emerging markets have higher highs and lower lows, when compared to the US.

IG Bonds: As expected, bonds are positive most of the time. By nature bonds are more conservative investments – lower returns (but more consistent) and very few negative years.

There’s a Temptation to Do Something

Market selloffs are uncomfortable. The natural response is to act because doing nothing can feel wrong, come across lazy, and honestly ‘buy and hold’ just doesn’t sound as smart as a sophisticated hedging strategy. The media doesn’t help either. It only amplifies fear, urging us to get out before the supposed crash or sell at the worst possible moment.

Selling when things feel scary immediately releases the pressure that has been building. It feels like you’re taking control, protecting yourself from further losses. But here’s the thing, if you are a long-term investor trying to time the market, you must make two decisions – when to sell and when to buy back in.

Selling is the easy thing to give into. Buying back in is extremely difficult. Why? It’s because markets rebound sharply and usually they do so when sentiment is at its worst and people feel the least confident. Missing just a handful of those rebound days can drastically impact long-term returns. See here, here, and here.

Here are some anecdotal headlines I picked out from the Wall Street Journal archives that were near market bottoms or expected downturns. 

(Returns are for the calendar year the headline was published, unless otherwise noted due to article being published near year end)

What Can You Do?

Market selloffs can feel uncomfortable, but responding with thoughtful (in)action can help you stay on track. Here are a few things you can do to stay calm and put yourself in a good position going forward.

Review your financial plan: Reviewing your financial plan can put your mind at ease and help you refocus on the things that you can control – your savings, your spending, and your short, intermediate, and long-term goals. Reviewing your plan provides you the opportunity to reassess what goals are important to you, review where you should be saving, identify new planning opportunities, and help reframe your perspective.

As part of this review, ensure you have enough cash on hand and emergency funds set aside. 3 to 6 months’ worth of expenses is a solid rule of thumb. Having a healthy cash buffer will provide peace of mind and prevent you from having to sell your investments in a downturn or emergency.

Take a deep breath.

Stay the course – don’t try to time the market: Do your best to focus on what you can control – growing in your career, managing your spending, and focusing on your savings. And when it comes to your investment portfolio, sometimes the best thing to do is to do nothing. 

Shift your perspective: If you will be buying or holding stocks for decades, think of selloffs as an opportunity. Lower prices today, increase the probabilities of greater potential returns tomorrow.

Being a great investor is about having patience and not panicking. When you focus on decades, not days, you’ll realize market dips can be great opportunities. I’m excited to revisit this in 10 years and see how the story played out.

 

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