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Longer Horizons Look Better for Stocks
For many investors, it’s hard not to follow the daily fluctuations of the stock market. But day-to-day volatility is a reminder that stocks are best considered a long-term investment.
Part of the reason stocks have higher expected returns than bonds is uncertainty over shorter horizons. For example, the S&P 500 Index return was negative in about 24% of overlapping one-year periods from January 1926 through March 2025. The worst outcome over these one-year periods was about –68%, dropping $1 in invested capital to just $0.32.
Things have looked better over longer horizons, with the caveat that the number of independent observations among rolling return windows dwindles as the horizon lengthens—just five for the 20-year returns. But the frequency of negative returns decreases as the investment period expands, and no stretch over 184 months has been negative.
This is not to imply stocks are less risky in the long run. The range between best and worst outcomes becomes vast at the longer time horizons. But the data we have suggest the likelihood of losing money in stocks is far lower if they are viewed as long-term investments.
Of course, most investors also have short-term needs for their capital. That’s why most of us have a mix of stocks plus risk-management assets, such as bonds. A thoughtfully designed asset allocation helps balance short-term liabilities with long-term growth of wealth. And that’s a recipe for staying disciplined and paying less attention to the throes of stocks each day.
Exhibit 1
Growth of $1, S&P 500 Index
January 1926–March 2025
Past performance is no guarantee of future results.
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