Emotional Roller Coaster Ride Flourish Insights

Episode #74: Emotional Roller-Coaster Ride

With the last market all-time high occurring more than 450 days ago - and another not yet in sight - the stock market has been quite the emotional rollercoaster for investors. Looking at history, though, shows that time favors the patient investor. Jay Pluimer shares tips on how to weather the ride back to the top in this optimistic episode.

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Episode Transcript:

Hi everyone, Jay Pluimer here with Flourish Insights. As the director of investments at Flourish Wealth Management, I take pride in providing our clients, colleagues, and friends with resources and information that can help them make strategic and effective choices regarding their investments. If you’ve been enjoying the show, be sure to subscribe on Apple, Spotify, Google, or wherever you get your podcasts, so you’ll never miss an episode.

Today, we are discussing why investing in the stock market leads to an Emotional Roller Coaster Ride.
 
The last time the stock market hit an all-time high was on January 3rd of 2022, which is over 450 days ago. It probably feels like longer for most investors, and there doesn’t seem to be much hope on the near-term horizon that we will experience another market peak any time soon. Welcome to the emotional roller coaster ride called the Stock Market!

There have been 11 Bear Markets with a drop of over 20% since the mid-1950s. The average stock market loss during those downturns has been a painful 35% and Bear Markets have lasted an average of 14 months. In addition, it has generally taken over 3 years for a market to exceed the previous all-time high through a Bear Market. Those are some scary statistics and are a big reason why investors generally have a much more vivid memory of the fall down a roller coaster than the slow trip to the prior peak.

To brighten the mood a little, the stock market has had positive returns over 100% of the 20-year time periods and 95% of 10-year time periods. That means time is definitely in favor of the patient investor who keeps their money in the stock market for longer periods of time. Five-year returns have been positive over 88% of the time and 3-year returns have been positive over 84% of the time, meaning that even medium-term investors have a very good chance of making money on their investments. However, the numbers become closer to a coin flip when looking at 1-day stock market returns which are positive around 55% of the time. One-month returns aren’t much better at 63% showing that investors will experience a lot of unfavorable daily losses on the way to experiencing a positive 20-year return.

I think it can be helpful to compare the emotional ups and downs of the stock market to a roller coaster ride because there are significant similarities between the two. For example, 100% of investors make money over 20-year time periods and close to 100% of people who ride roller coasters are alive at the end of the ride. In addition, the downturns tend to produce screams and a desire to shut your eyes until the bad part is over. The ride to the top of the roller coaster is generally less exciting or memorable, except that part toward the end when the peak is approaching, which is also where the anxiety starts to build before everything turns downward. Those last couple of sentences were about the stock market but are hard to differentiate from the description of a roller coaster ride. I’m afraid of heights and am reluctant to ride roller coasters, but no matter how high my anxiety spikes during the ride I feel safe knowing I’ll get through the ride.

I encourage investors and clients to embrace a similar approach when looking at the daily, weekly, or monthly ups and downs in the stock market. It