After Friday’s jump (credited to the jobs report but, frankly, “pundits” always confuse correlation with causation) the S&P 500 was roughly even YTD.  After Mon’s increase the S&P 500 closed positive for the year.  That’s right – despite all the handwringing and proverbial jumping out of windows by many investors the S&P 500 is positive for 2020.

 

Let’s dive into the numbers:

  • The S&P 500’s YTD return as of Mar 23rd (the low of the year) was -30.4%.
  • The S&P 500’s return since Mar 23rd is roughly 43%.  (Undoubtedly all of our friends, family, neighbors, colleagues, etc. will claim to have invested 100% of their savings into equities on Mar 23rd and earned a 43% ROR.  Anyone want to buy a bridge?)
  • As of Friday the S&P 500 sits about 5% off of all-time highs.  Let’s say that again – ALL-TIME HIGHS!
  • As of Friday the 5-yr average annual ROR of the S&P 500 was 11.1%.
  • As of Friday the 10-yr average annual ROR of the S&P 500 was 13.9%.
  • In 2020 the daily volatility of the stock market is close to 50%. For comparison the standard deviation of daily returns in 2019 was 12% and in 2018 was 17%.
  • In 2020 there have been 35 trading days in which stocks gained or lost 3% or more.  For comparison over the past 5 yrs there have been but 11 trading days in which this occurred.
  • In 2020 there have been eight days in which the stock market gained 4% or more.  Five of those eight days saw gains of 6% or more.  For comparison there was not a single daily gain of 4% or more from 2015 through and including 2019.  (Still want to guess at which days are the right/wrong days to be buying/selling?)

Investors who fancy themselves smarter than the average bear have been busy trying to time the markets.  They’ll claim they don’t do that.  Instead they’ll hide behind “thoughtful analysis” which is basically guessing where the markets are going in the short-term or waiting for the “all clear” signal or proverbially reading the tea leaves.

This is not a strategy.

Know what is?  Dollar cost averaging.

There’s nothing special about DCA.  There’s no need to “predict” (i.e. guess) the direction of the markets or interest rates.  There’s no need to read and interpret Fed data.  There’s no need to hang on every word of your favorite talking head that CNBC trots out for their “bull vs. bear” debate.

What DCA requires is that you are systematic in your approach and in control of your emotions.  You make decisions according to a logical approach of buying more when prices are low and less when prices are high.  You smooth out the ups and downs.  You don’t give in to the euphoria and chase prices higher.  You don’t give in to the doom and gloom by holding on during down markets and then capitulating.

To be sure it’s easier said then done.  It’s tough in the moment.  That’s why you turn off the TV, avoid the internet and tell your friends you’ll gladly accept their “informed advice” only when you ask for it.

Compounding is a powerful force.  Let it work for you.