The bear market of 2002 bottomed on 10/9/2002. The stock market then gained 101% over the subsequent 5-year period, peaking on 10/09/07.
You can see the start of this bear market on the chart above, between the red dots. If you remained invested, from July 2002 through year end 2007, you earned an 8% annualized return. The Rule of 72 tells you that at an 8% return, your money will double every 9 years.
The value of equities matters at the time you need to sell them and use them for their intended purpose: future income, not current
People who sell after the market has dropped wait until the market has gone back up to buy back in, thus insuring they earn below average returns.
The time to sell equities is after the stock market has had a year of above average returns. If the stock market had a return of 15% of more, consider taking gains and investing them in safer investments.
If the stock market has dropped 15% of more, remain invested, and wait for a better year.
Some readers will point out that if you had stayed invested through 2008, the returns above would have been wiped out. True.
I am not saying you should blindly invest and never make changes. I am saying the time to sell is in up years. If you had actively taken gains after great years in the market, a process called rebalancing, than the bear market of 2008 would not have such a devastating affect.
In another few years, I will be able to add a whole new set of charts to this series. It will start with the bear market of 2008. I don’t know when the recovery will happen, but I know my investments will regain their value the fastest by participating in that recovery, not by sitting on the sidelines.
For more perspective, see a table of historical stock market returns, which shows year by year returns of the S&P 500 Index from 1973 to today.
