Whether you're a seasoned investor or just beginning your financial journey, you’ve probably heard that long-term investing is the most reliable path to wealth accumulation and financial stability.  

But with volatile market conditions and unpredictable trends, it can feel like riding a rollercoaster.  During periods of uncertainty and fear, it's crucial to anchor yourself with fundamental principles that will guide your investing decisions.  Here are 5 historical investing facts that will help settle your nerves and set you on the path towards investing success:

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Corrections and Bear Markets Are Normal

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On average, corrections (10% loss from the peak) have occurred about once per year since 1900.  The average correction has lasted 54 days.  Less than 20% of all corrections turn into bear markets (20% loss from the peak).  Bear markets are normal, and happen every 3-5 years.  They have always been followed by a bull market.  Long-term, the U.S. stock market has ALWAYS increased throughout history.  It may not be a smooth ride, but the market always recovers.  Always.  And, if someday it doesn’t, no investment will be safe and none of this financial stuff will matter anyway.  

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Market Timing Is Not Smart for the Average Investor

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First of all, market timing is NOT recommended.  There is not a single prominent investment manager (Ex:  Warren Buffett, John Bogle, Ray Dalio, Peter Lynch, Michael Kitces) that believes market-timing is a good strategy.  The reason is, not only do you need to know when to get out, you need to know when to get back in.  Achieving higher returns through market-timing is purely attributed to luck.  It is not an effective strategy.  

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"If it were truly possible to predict corrections, you'd think somebody would have made billions by doing it." –Peter Lynch, legendary mutual fund manager

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If you’re still insistent on timing the market, consider this: investing with a long-term time horizon eliminates the bulk of risk associated with buying at the wrong time.  Here is an extreme hypothetical to illustrate:

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1. Mr. Perfect-timing:  In 1993, Mr.P invested $2,000 annually for 20 years when the markets hit an annual low.  His balance in 2013 was $87,004
2. Mr. Worst-timing:  In 1993, Mr.W invested $2,000 annually for 20 years when the markets hit an annual peak.  His balance in 2013 was $72,487

The moral of the story is that even with spectacularly bad luck, Mr. Worst-timing still made a substantial profit, thanks to compounding + long-term time horizon.  

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The greatest danger is being out of the market. 

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From 1996 to 2015, S&P 500 returned an average of 8.2% a year.  But, if you had missed the top 10 trading days during those 20 years, your returns dwindled to 4.5% per year.  JP Morgan found that over the last 20 years, 6 out of 10 of the best trading days in the market occurred within two weeks of the 10 worst trading days.  

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Today’s winners are almost always tomorrow’s losers. 

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‍A study done in 1999 looked at the performance of all the top-performing funds 10 years AFTER they received a five-star rating from Morningstar.  Of the 248 stock mutual funds with a five-star rating, only 4 kept that rank after 10 years.   

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