Here’s a trick question: what is the biggest danger to your long-term investment results? If you answered something like “market downturns” or “downside volatility,” you’re not only missing a bigger danger, you may be missing the way investment markets work.
There have been a lot of market setbacks since 1896, and yet the overall trajectory of the market (as you undoubtedly already knew) has been a fairly steady rise. The longest recovery times in modern history—25 years during the Great Depression, 16 years during the stagflation period of the 1970s—are also the only times when someone with a time horizon of more than 10 years would have seen a loss after hanging tight for the full decade. The recovery time from the severe downturn in the Great Recession was just 6 years.