The first twenty days of 2016 began with a sudden drop in most major markets, in which all but two trading days were negative. Since then, some indexes have seen a slight bounce-back, but most are still down significantly. In fact, out of 39 total trading days so far, 21 of them, or 54%, have been negative and 36% were down over 1% per day.
If you’re like most people, when you check your account at the end of the day, you are generally happier if the value is up, and less happy if it is down. It seems like the direction of the change is more important than the amount, especially if several days in a row have been negative. So, the question is, does it make you happy to check your account daily?
The data, it would seem, suggests otherwise.
Since 1988, the U.S. stock market has had an average annual total return of about 10%. However, if you looked at your account every day over that time period, 46% of the time you would have been unhappy (e.g. the market was down that day), whereas if you only looked at it annually, you would be happy 82% of the time.
More importantly, I’m quite sure that if you asked most investors, they would be quite happy with a 10% annualized return over three decades. Of course, this is not a prediction that the next 30 years in the stock market is going earn that amount, but what we can say is that for long-term investors, they are far happier in our opinion, if they learn to ignore short term volatility and focus on long-term results.
Special thanks to David Hultstrom, CFP, for the inspiration, data, and analysis for this post.