When investing in stocks, the longer you stay in the market the better the chance of earning a positive return. Let’s quantify that.
Source: Bob Shiller, Capital Advisors
The above chart is simple and perhaps obvious, but still tells a great story. The data used is the real total S&P 500 stock returns (including dividends, after inflation) on a rolling monthly basis since 1900. On the horizontal axis you have the Years Invested and on the vertical axis the % Positive.
For example, for every one-year period, calculated returns were positive about 68% of the time. However, at 10 years that increases to 85%, and once you hit 20 years and beyond you are at 100%. Thus, the longer you stay invested the greater your probability is of earning a positive return.
Of course, the past is no guarantee of future results, and if your time horizon is only a few years, you may want to consider some alternatives to stocks.
S&P 500 Index is an index of 500 of the largest exchange-traded stocks in the US from a broad range of industries whose collective performance mirrors the overall stock market. Investors cannot invest directly in an index.