‹ View All Insights

3 U.S. Market Trends That May Help Build Wealth

Published by Motley Fool Wealth Management on Wed, Sep 1, 2021
Three pillars of a ruin that have stood the test of time

Investors are sitting on a lot of cash. But despite the U.S. savings rate at nearly twice is normal range1, some investors are reticent to part with their cash and invest in the stock market. The reason? Some are trigger shy after experiencing steep market declines. Even the strong rebound from the pandemic-induced losses last year has not enticed those would-be investors. In fact, it may be having the opposite effect—keeping away some investors who fear they’ve missed their window of opportunity and should wait for a more opportune time. But we believe any time you can invest is a good time. Here’s why.

Three time-tested trends

Although not being invested during a strong rally means potentially missing out on gains, we see a few truths about the stock market that we believe explain why any time you invest, there's potential to grow wealth.

Trend #1: Time in the market is typically more important than timing the market

Waiting for the most optimal time to put money into stocks often impedes wealth accumulation.

Let’s walk through an example:

Janeen has $100 K to invest in the stock market but is not sure if now is the right time to buy stocks. Recent volatility has her questioning if she should wait and continue to hold cash instead. Her wealth advisor analyzed returns over the last 10 years to show her the potential impact of her decision.


The analysis indicated the following for the period examined. If Janeen:

  • Invested all days, her wealth would have increased to over $366 K
  • Missed the 10 best days, her wealth still would grow by $102 K, but would be roughly 45% less than investing all days
  • Skipped the 40 best days, she would have lost 15% of her initial investment

Why is there such a big difference by missing just 40 out of over 3,600 days?

Trend #2: U.S. stocks tend to rise over time

Staying on the sidelines for just 40 out of 3,600 days wouldn’t be harmful if investors had a crystal ball that foretold the very worst market days. But that’s not realistic! Often the best or worst days occur without warning—and within close proximity to each other. Data show that seven of the best 10 days over the last 20 years occurred within two weeks of the 10 worst days.2 Luckily, investors don’t need to have a high level of prescience.

Despite periodic dips, the U.S. stock market has risen over the long term. Even after prolonged or severe drawdowns due to wars, regional or global pandemics, burst bubbles, and a global financial crisis, the stock market has recovered and continued to grow.

But could the next decline last longer or be too severe to recover from? These worries—despite the long-term growth trend—may paralyze some investors. Truth #3 puts drawdowns into perspective.

Trend #3: Large pullbacks have been relatively short-lived

Since 1928, there have been seven drawdowns of 30% or more for U.S. stocks. Of those, the Great Depression was by far the steepest and longest-lasting. The other six took just over 13 months to fall 44.7%, on average. The shortest drawdown lasted 1.1 months (COVID-19 pandemic), while the longest was 18 months (Tech Bubble).3


Still, a decline that persists for a year and a half may seem long. But compared to the expansionary periods that followed these drops, it’s pretty short. The average expansion following these episodes was over seven years. And during those periods, the market delivered an average total return of more than 256%.4

Still timid?

Despite these three historical patterns, market drawdowns are disconcerting, and some investors may still fear investing at the wrong time. One way to overcome that concern is to dip your toe into the market slowly by dollar-cost averaging.

In dollar-cost averaging, individuals invest a specific amount at regular intervals over time. Most individuals already do this—through an employer-sponsored retirement plan, like a 401(k). In employer-sponsored plans, a set amount is typically taken out of earnings and invested each pay period.

Dollar-cost averaging is helpful for investors who have trouble saving or are fearful of going all-in at once. By investing gradually, if stock prices fall, investors can buy shares at cheaper prices. Conversely, if prices rise, they are hurt by buying shares at higher prices.

But there are trade-offs. First, as a portion of cash sits idle on the sidelines, it’s not working to potentially build net worth. Second, the longer it takes to invest, the lower the potential wealth accumulation. Data show that two-thirds5 of the time, investing immediately produced better long-term results than a staged entry. But for fearful investors, the “cost” of dollar-cost averaging may well be worth the peace of mind.

Two critical points

In today’s low-interest-rate environment, maintaining a high cash position tends to disadvantage wealth growth. But often it feels safer, especially for risk-averse individuals. To overcome the hurdles induced by fear or other circumstances, consider two critical points:

First, continue to invest. By removing emotion from the picture and investing on an ongoing basis, you eliminate the illusion of the "right time." We believe that time in the market is one of the key determinants of building wealth over time. But if being fully invested isn’t feasible, a staged entry is better than not investing at all.

Second, lengthen your time horizon. The U.S. stock market tends to rise over time. So even if there is a pullback, historically, it has recovered and continued its upward trajectory.

That’s why the longer investors stay in the stock market, the lower the risk of losing money and the better the chance of making money. Over 90 years of data show that investors lost money in the short-term (1 year) 25% of the time. But over the long-term (15 years), investors lost money only 0.2% of the time.6

Now those are odds even the most fearful can get behind!


2 JP Morgan. Returns based on the S&P 500 Total Return Index Jan. 2, 2001-Dec. 31, 2020

3 First Trust, Bloomberg Daily returns for the S&P 500 Total Return Index from 1942-Jun 30, 2021

4 First Trust, Bloomberg Daily returns for the S&P 500 Total Return Index from 1942-Jun 30, 2021. Data cited excludes the COVID-19 pandemic

5 https://www.finra.org/investors/insights/three-things-know-about-dollar-cost-averaging

6 Blackrock, Morningstar Data for S&P 500 and IA SBBI US Large Cap Index from 1926-2019


The content in this article is provided for informational purposes only, reflects our general views on investing, and should not be relied upon as recommendations or financial planning advice. We encourage you to seek personalized advice from qualified professionals regarding all personal finance issues. 

Access to Motley Fool Wealth Management (“MFWM”) is only available to clients pursuant to an Investment Advisory Agreement and acceptance of MFWM's Client Relationship Summary (PDF) and Brochure (PDF - 204 KB). You are encouraged to read these documents carefully. All investments involve risk and may lose money. MFWM does not guarantee the results of any of its advice or account management. Clients should be aware that their individual account results may not exactly match the performance of any of our Model Portfolios. Past performance is no guarantee of future results. Each Personal Portfolio is subject to an account minimum, which varies based on the strategies included in the portfolio. MFWM retains the right to revise or modify portfolios and strategies if it believes such modifications would be in the best interests of its clients.

During discussions with our Certified Financial Planners, they may provide advice with respect to 401(k) rollovers into accounts that are managed by MFWM. Such recommendations pose potential conflicts of interest in that rolling retirement savings into a MFWM managed account will generate ongoing asset-based fees for MFWM that it would not otherwise receive.