I like playing the odds when it comes to the stock market.
I’m a long-term investor because it increases your odds of success. There are no guarantees but the short-term is far more volatile than the long-term.
But the odds in the stock market are not static. These things are constantly changing and the results are heavily reliant on the time frame you use.
For example, over the last 100 years or so the S&P 500 has experienced a peak-to-trough drawdown of 10% or worse in two-thirds of all years. You would have seen a 5% correction in 94% of all years and a 20% drawdown in 1 out of every 4 years.
These are the long-term averages:
However these averages are skewed by the early part of the data. Just look at how much worse things were in the 1928-1950 period:
Every single year had a 10% correction. Half of all years had an intrayear bear market!
This makes sense since this time frame included the Great Depression and World War II.
Now look at the ensuing 75 years of data:
That’s more like it.
The second dataset is probably more applicable to investors today. There are a lot of structural reasons why I think another 1929 won’t happen.
However, the post-WWII era still has plenty of scary periods. It feels like a lifetime ago, but there were two 50% crashes in the first decade of this century.
Despite the bull market, we’ve essentially had three bear markets in the 2020s (Covid, 2022 and Liberation Day).
These long-term averages are helpful in terms of context but it’s important to remember that risk can be lumpy just like returns.
Historical data offers a useful reminder that despite incredible long-term gains in the stock market, there have been plenty of setbacks along the way.
Losses always have been and always will be a big part of investing in the stock market.
Michael and I talked about possible gains and losses for the stock market in 2026 and much more on this week’s Animal Spirits video:
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Further Reading:
Investing for the Long-Term
Now here’s what I’ve been reading lately:
Books:
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