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Price of admission

Monthly returns on the S&P 500 so far this year:

  • January -5.2%
  • February -3.0%
  • March +3.7%
  • April -8.7%
  • May +0.2%
  • June -8.3%
  • July +9.2%

There have already been 3 months this year when the market fell 5% or more.

This did not happen even once last year. This has only happened twice in 20201. There were no 5% or worse months in 2017, 2016, 2014 or 2013.

Months below 5% don’t happen very often, but they’re not entirely uncommon. Over the past 96 years, on average, the stock market has gone 5%, or worse in one month, once a year.

The last time we had month-to-month volatility was in 2008, when the market fell more than 5% in 5 different months.2

There have also been monthly gains of around 4% and more than 9% this year. This is normal during a market downturn. Volatility tends to cluster during downturns.

For example, during the 2010 European debt crisis, the S&P 500 saw monthly losses of -3.6%, -8.0%, -5.2% and -4.5%. But monthly gains were +3.1%, +6.0%, +7.0%, +8.9% and +3.8%.

2020 suffered monthly losses of -8.2%, -12.4%, -3.8% and -2.7%. But those losses were mixed with monthly gains of +12.8%, +4.8%, +2.0%, +5.6% +7.2%, +11.0% and +3.8%.

The craziest year of monthly returns I’ve found has to be 1932:

  • January -2.7%
  • February +5.7%
  • March -11.6%
  • April -20.0%
  • May -22.0%
  • June -0.2%
  • July +38.2%
  • August +38.7%
  • September -3.5%
  • October -13.5%
  • Nov -4.2%
  • Dec +5.7%

That’s half of all monthly incomes in the double-digit region. From March to June, the stock market lost 45% of its value.3 Then the market has seen an increase of 92 percent in the months of July and August.

Can you imagine living through that kind of volatility today? Heads explode all over CNBC.

Going back to 1926, the S&P 500 has been positive in approximately 63% of all months, meaning it has been negative in 37% of monthly returns.

That’s not a bad winning percentage but still leaves plenty of room for losses.

The price of admission to Disney World is long lines, crowds of people, sore legs from all the walking, subpar food, and exorbitant ticket prices that defy inflation every year.

The trade-off for all those things is creating wonderful memories with your family, some great beer at Epcot, a handful of great rollercoasters, ear-to-ear smiles for your kids, and a family photo or 12 you can look back on fondly for years to come.

The price of entry into the stock market is bone-crushing volatility, a lumpy return stream along with the pain and agony of watching a chunk of your life savings evaporate before your eyes.

All of those things trade-off for long-term returns above the rate of inflation, which can earn you multiples of your initial investment and is the greatest wealth-building machine ever created.

You will not get:

… without experiencing this:

This is the nature of the beast.

Further reading:
The best and worst years in stock market history

1Even though those lowest months were losses of -8.2% and -12.4% in February and March of that year.

2Those monthly losses were -6.0%, -8.4%, -8.9%, -16.8% and -7.2%. There was also a monthly loss of -3.3% for good measure. What a brutal year.

3And this after the stock has already fallen more than 70% from its peak.


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