The Tortoise Beats the Hare: A 23-Year Study of Patient Investment

Let’s talk about two stock market charts. Don’t worry, it won’t take long. Pictures can say a few thousand words, but I’ll keep my comment pretty short.

The long-term vision

^ SPX data by YCharts

The blue mountain in the background is the total return for the popular S&P 500 (^GSPC 1.15%) market index, starting at the turn of the millennium and ending on New Year’s Eve 2023. The index has gained an average of 7% per year during this period. That might not sound like much, but those modest increases added up to a total return of 411% over 23 years. Not too shabby, given the fairly modest annual returns that have been below the S&P 500’s long-term averages, not to mention the 13% average returns over the past 10 years.

The green overlay shows you the annual returns of the same index every year along the way. This includes the bursting of the dot-com bubbles and the attacks of 9/11. The deepest annual decline came from the Lehman Brothers subprime mortgage crisis in 2009. The 2022 inflation-fighting measures felt terrible at the time, but they don’t seem too painful in hindsight.

And all these temporary declines were followed by good years — not necessarily immediatebut consistent enough to quintuple your average stock market investment over time. You did even better if you bought your shares of an S&P 500 index tracker such as Vanguard S&P 500 ETF (VOO 1.08%) or SPDR S&P 500 ETF Trust (SPY 1.06%) at the lows of 2003 or 2009, but the overall returns would be fantastic so far, even if you made a big investment at the local peaks of 2000 and 2007 — probably the worst times to enter the market during this period.

Time and patience can heal all market wounds.

What about daily movements?

Next, I’ll zoom in a bit. The next chart does the same thing, but over the past year.

As before, the light blue mountain shows the total returns of the S&P 500 over the entire period. Green squiggles represent each day’s gain or loss along the way:

^ SPX data by YCharts

The numbers are lower because you’re looking at a shorter period of time. There are 252 trading days in this chart, so the average daily return was about 0.1%.

The big drops are more modest, of course. For example, the fallout from higher Japanese interest rates last week was only a 3% market drop. These pinches can sting, but the S&P 500 has already bounced back from last week’s streak of price drops. And those average daily moves of one-tenth of a percent added up to a pretty impressive total return of 30% over 52 weeks. Math for fun and profit!

As with the 23-year chart, this single-year analysis shows that short-term market movements don’t really matter over the long term. In any case, you may want to look at sudden market peaks so you can abandon any trades you may have planned, and surprise dips so you can take action while prices are low.

Lessons learned from this chart review

Keeping up with market news can be fun and you’ll learn valuable lessons like financial analysis and long-term pattern recognition. Just don’t worry too much about the puts and prices of a particular market day. Whole years are more important and the real secret to wealth building success lies in patient property compound returns over many years.

Time is your best friend on Wall Street, even if you can’t lock in a steady stream of big short-term profits. The S&P 500 index funds I mentioned earlier can help you do this with a generous dose of risk-reducing diversification. Buy and keep, my friend. Buy and keep.