4 months ago • 1 min
Earnings season is here, and the vibe isn’t great. Although the results haven’t been atrocious, some have hinted at early signs of a recession. But this shouldn’t have you running to hide under the covers: in the past 100 years, recessions haven’t been that bad for investment returns.
In the two years following the start of a recession, stocks actually tend to perform pretty well, on average showing a solid annualized return of 8.8%. Think about it this way: if you invested $10,000 right at the peak of an economic boom, on average, you’d have $12,145 in your pocket after two years. If you invested the same amount at the start of a recession, you’d have roughly $11,664 after two years, at those average recessionary returns. Simply put, it’s safe to say that history suggests sticking with stocks often pays off for investors.
This should tell you a lot about how savvy markets are. See, stock prices tend to drop in value before a recession even starts. In the US, stock market peaks tend to happen long before a recession begins – as long as 22 months before, but on average about five months before. It’s tempting to try to play it safe by pulling your money out of the market before a recession, but timing the market tends to be a losing game.
Recessions are part of life, and the important takeaway is to remain invested, even when recession fears are high. If you’re concerned about a market downturn, consider low-cost investment options like buffer funds or defined outcome funds that work like a safety net to protect you against market falls. You can find out more about them here.