Long-Term Investors, Don’t Let a Recession Faze You

Investors may be tempted to abandon equities and go to cash when there is a heightened risk of recession. But research has shown that stock prices incorporate these expectations and generally fall in value before a recession even begins.

Across the two years that follow a recession’s onset, equities have a history of positive performance. Data covering the past century’s 16 US recessions show that investors tended to be rewarded for sticking with stocks. In 12 of the 16 instances, or 75% of the time, returns on stocks were positive two years after a recession began (see Exhibit 1). The average annualized market return for the two years following a recession’s start was 8.8%. Looked at another way, a $10,000 investment at the peak of the business cycle would have grown to $12,145 after two years on average. 

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Robert J. Pyle, CFP®, CFA, AEP® founded Diversified Asset Management, Inc., in 1996 to provide personalized, comprehensive wealth management services to successful individuals, families, single women, and business owners. His specialty is addressing the complex financial needs of self-employed professionals, corporate executives, and small-business owners. Our disclosure can be found here. The views, opinion, information, and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc. Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting, or tax advice.