Back in March 2020, there was widespread panic in the markets. There was a global pandemic on the horizon, and there was plenty of uncertainty as to what was going on in the world and what would happen with stocks in general. The S&P 500 (SNPINDEX: ^GSPC) was in the midst of a free fall, but it would go on to recover, as it has always done so in the past.
The temptation is to always think that this time is different. But the reality is that history can and does repeat itself. And buying when investor sentiment is low and during a sell-off can result in terrific gains later on. The key, of course, is having the patience and ability to remain invested for the long term.
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It’s now been six years since the market reached its low point during that initial panic in 2020, and you might be surprised by the gains the S&P 500 has amassed since then.
In March 2020, the S&P 500 was falling fast, and it was uncertain how long the tailspin would last. Ultimately, on March 23, 2020, it would reach a low of 2,191.86.
On Monday, the broad index closed at 6,581. That means that since its low point from six years ago, the S&P 500 has tripled in value. That averages out to a compounded annual growth rate of approximately 20%, which is double its long-run average of 10%.
The problem is, of course, knowing when the bottom has been hit. But even if you missed it and invested in the days before or after that day, you would have still generated some incredible above-average returns by just tracking the S&P 500 through an index fund.
When a stock has fallen sharply in value, it can be difficult to want to invest in it, because you worry that it may continue to go lower. And let’s face it, no one wants to see red when they look at their portfolio. But if you invest in quality stocks amid adversity, that can lead to significant returns later on. This is why it’s always crucial to consider valuation when buying stocks, as buying at a low price can drastically enhance your future returns.
Alternatively, you can simply track the broad market through index funds and invest for the long haul. The silver lining from the brief 2020 crash is that the market recovered, just as it always did. And while it can be tempting to want to sell, remaining invested and staying the course during troubled times can be one of the best things you decide to do.