Ignoring the Bumps
History shows that stock market declines are common, though they’re often momentary blips in an otherwise upward climb.
The US stock market had two declines this year that startled many investors. One was just over a month ago, when stocks fell about 8.5% from July 17 through August 5. I had actually forgotten about the other one back in April, when stocks dropped 5.7% from April 1 through April 19.1 Maybe I’m wired to ignore anything that begins on April Fools’ Day.
What may have gotten lost in focusing on the declines is how well the US market has performed for the overall year. Through the end of August, the Russell 3000 Index was up 17.1%. That’s substantially higher than the index’s average calendar-year return of 13.2% from 1979 to 2023.
There’s an important message here about not overreacting during a downturn—it could be a momentary blip in an otherwise upward climb for the markets. In fact, the Russell 3000 had an intrayear decline of at least 10% in 25 out of 45 years since 1979. In 17 of those 25, the index ended up for the year!
EXHIBIT 1
Calendar-Year Returns vs. Intrayear Gains and Declines for the Russell 3000 Index
1979–2023
Footnotes
1. Measured by the Russell 3000 Index.
Disclosures
The information in this material is intended for the recipient’s background information and use only. It is provided in good faith and without any warranty or representation as to accuracy or completeness. Information and opinions presented in this material have been obtained or derived from sources believed by Dimensional to be reliable, and Dimensional has reasonable grounds to believe that all factual information herein is true as at the date of this material. It does not constitute investment advice, a recommendation, or an offer of any services or products for sale and is not intended to provide a sufficient basis on which to make an investment decision. Before acting on any information in this document, you should consider whether it is appropriate for your particular circumstances and, if appropriate, seek professional advice. It is the responsibility of any persons wishing to make a purchase to inform themselves of and observe all applicable laws and regulations. Unauthorized reproduction or transmission of this material is strictly prohibited. Dimensional accepts no responsibility for loss arising from the use of the information contained herein.
This material is not directed at any person in any jurisdiction where the availability of this material is prohibited or would subject Dimensional or its products or services to any registration, licensing, or other such legal requirements within the jurisdiction.
“Dimensional” refers to the Dimensional separate but affiliated entities generally, rather than to one particular entity. These entities are Dimensional Fund Advisors LP, Dimensional Fund Advisors Ltd., Dimensional Ireland Limited, DFA Australia Limited, Dimensional Fund Advisors Canada ULC, Dimensional Fund Advisors Pte. Ltd., Dimensional Japan Ltd., and Dimensional Hong Kong Limited. Dimensional Hong Kong Limited is licensed by the Securities and Futures Commission to conduct Type 1 (dealing in securities) regulated activities only and does not provide asset management services.
RISKS
Investments involve risks. The investment return and principal value of an investment may fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original value. Past performance is not a guarantee of future results. There is no guarantee strategies will be successful.
CANADA
These materials have been prepared by Dimensional Fund Advisors Canada ULC. The other Dimensional entities referenced herein are not registered resident investment fund managers or portfolio managers in Canada.
This material is not intended for Quebec residents.
Commissions, trailing commissions, management fees, and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Unless otherwise noted, any indicated total rates of return reflect the historical annual compounded total returns, including changes in share or unit value and reinvestment of all dividends or other distributions, and do not take into account sales, redemption, distribution, or optional charges or income taxes payable by any security holder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated.
Resources
