Discouraged Investor

Dear Dr. Per Cap: 

I started investing during the pandemic and did great those first two years. Then last year, the bottom fell out of the stock market and I lost a big chunk of what I made. 

It’s no fun investing in a down market and I’m ready to pull the plug with what money I have left. Why invest anymore?


Discouraged Investor

Dear Discouraged Investor,

The S&P 500, my favorite benchmark for measuring overall U.S. stock market performance, was down almost 20% in 2022. The NASDAQ Composite, another common stock market index, was down more than 33%.

You, me, and everyone I know saw their 401ks, IRAs, mutual fund accounts, taxable brokerage accounts, and pretty much every other investment tied to the stock market take a hit. You’re darn right it’s no fun watching your investments drop like a spy balloon over the Carolina coast.

But before you throw in the towel, let’s review a little stock market history to gain some perspective. 

In 2021, the S&P 500 finished up 27% for the year. And 2020 marked another solid year when the index closed up 16%. Then 2019 wasn’t just a great year for a little orange egg on the internet. The S&P enjoyed a superstar year, too, finishing up 29%. Of course, stocks can’t rise every year and the S&P lost 6% in 2018. In 2017, stocks did well with a 19% positive return.

Let’s do the math: If you add up the four years of positive double-digit stock market returns from 2017 through 2022, and then subtract the two years when the market stumbled, you get a six-year total return of 52% for the S&P 500. Divide that by six and your average annual return for our brief historical snapshot is 8.66%.

That’s certainly lower than the S&P 500’s average annual return of 10.25% over the last 50 years, but still not a reason to freak out.

I think you’re facing the same challenge as millions of other new retail investors who jumped into the stock market during the pandemic. Many of these green investors were younger adults flush with stimmy cash and time. Many had also never experienced a major market downturn, like in 2008, when the mortgage meltdown led to the stock market dropping 37%.

I’ve been investing for almost three decades, long enough to see great years, horrible years, and everything in between. I can’t tell you what to do with your money, but I can tell you to think hard about why you started investing in the first place.

If your goal was to get rich quick, then maybe the stock market isn’t for you.

If your goal was to safeguard your assets, protect your money from the eroding effects of inflation, and build wealth in line with your chosen risk tolerance, then you might just want to hold tight.

Because like my grandma used to say, “A rainy day only makes you appreciate the sunshine that much more.”

Unless, of course, there’s a spy balloon floating up there.

Ask Dr. Per Cap is a program funded by First Nations Development Institute with assistance from the FINRA Investor Education Foundation. For more information, visit www.firstnations.org. To send a question to Dr. Per Cap, email askdrpercap@firstnations.org.