Chart: Is Now Bad Time to Give Up on Stocks?

Last Updated Jul 8, 2010 11:53 PM EDT

Seventy-five percent of Americans say they have become more financially conservative since the Great Recession touched down 30 months ago, according to Pew Research. In terms of investments, that's pretty much boiled down to giving stocks the cold shoulder. In the first five months of this year the Investment Company Institute reports that net new investment into stock funds is just 12 percent of what was plunked down into bond funds. That's actually an improvement over 2009 when stock funds had a net outflow of $40 billion while bond funds took in a record $376 billion. I'll never suggest loving stocks is easy, but take a look at the chart below before you get comfortable abandoning stocks for your long-term retirement portfolio. The red bars show 10-year periods when the stock market returned less than 5 percent. Notice what tends to happen after those red-bar periods.

Source: Selected Funds/Davis Advisors


Past performance, as I am obligated to point out, is of course no promise of future performance, but that chart makes a pretty decent case that sticking with stocks after a bad stretch typically is rewarded.

The chart comes courtesy of Davis Advisors, managers of more than $175 74 billion in funds including Davis New York Venture, Selected American, and Clipper. Davis got its start about 80 years ago and still remains a family-owned business (the third generation is at the helm these days.) That's plenty of real-world, real-time experience to fall back on, and the Davis message is that patience is a key element of successful long-term investing:


  • In every past case, the 10 year period following each disappointing period produced satisfactory returns...these periods of recovery averaged 13% per year and ranged from a low of 7% per year to a high of 18% per year.

  • Though extremely challenging to do, history has shown that investors should feel confident about the long-term potential of equities after a prolonged period of disappointment.

Just something to keep in mind as your second-quarter statements start rolling in. Perhaps some rebalancing is in order to get your portfolio back to a proper stock allocation. If that's a nerve wracking-prospect check out this take on why dividend-paying stocks could be a better value than bonds right now.