Scroll Top

Do Downturns Lead to Down Years?


Stock market slides over a few days or even months like what we experienced in February and March of this year may lead investors to anticipate a down year.  Is that always the case?

When looking at the Russell 3000, a broad market index representing the entire US stock market, it becomes clear that large downturns are to be expected every year, and more often than not, are not a reliable indicator of how the market performs over longer time periods.  In the past ten calendar years alone, there has been a decline of more than 10% six times.  In those six years, the average return is 7%.  Below, we have the annual returns of the Russell 3000, and you can see that the index had positive returns in 15 out of the past 20 years, despite some notable dips within those years.

[pdf-embedder url=”” title=”Do Downturns Lead to Down Years”]

Although steep equity declines like what we have experienced so far this year are worrying, they aren’t unprecedented, and we fully believe that sticking to your investment strategy in these tough times will put you in the best position to capture a recovery.  In particular, we look to instill discipline to your strategy by having specific rebalancing thresholds that dictate when to make trades in your portfolio to bring it back in line with its target asset allocation.  Although the markets may move in any direction over the short term, buying into what is below target using proceeds from what is above target is a disciplined approach that maintains a portfolio’s long-term focus.

Remember that volatility is a normal part of investing.  Tumbles may be scary, but they shouldn’t be surprising.  Look to your target asset allocation to drive rebalancing decisions in order to remain disciplined and keep perspective through the volatility.


Source: Dimensional Fund Advisors LP.  Past performance is no guarantee of future results. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio.
In US dollars. Data is calculated off rounded daily returns. US Market is the Russell 3000 Index. Largest Intra-Year Decline refers to the largest market decrease from peak to trough during the year. Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes.
Investing risks include loss of principal and fluctuating value. There is no guarantee an investment strategy will be successful.
Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission.