Even when it hurts, hanging on during market routs pays off.Risk is the price of admission into the stock market. But a by Schroders' Duncan Lamont, head of research and analytics, reminds investors that, when it gets painful, it's still worth holding on to your ticket.
Lamont points to 11 stock-market declines of at least 25% between 1871 and 2019. In each case, no matter how much more the market fell, investors who stuck to their stocks after prior 25% drops were made whole years earlier than investors who sold and went to cash at the 25% point ("cash" returns were calculated based on short-term Treasuries).
The disparity was massive in the 1929 cash: "Stick-with-stocks" investors recouped their losses after 15 years, while it took cash holders 34 years to catch up. While the "stick-with-stocks" crowd recovered their losses in less than five years following the 2001 and 2008 crashes, "dash-for-cash" investors who never returned to stocks are still underwater. Every investor's personal situation is different, but the data shows that sticking to your guns ultimately works.