William Edwards
4 min read
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Market volatility has made the prospect of investing in stocks daunting in the Trump era.
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Regardless of near-term price swings, being patient over the long term has paid off throughout history.
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This is the fourth installment in BI's six-part series on making major life decisions during this period of massive change.
Ask any financial advisor if now is a good time to buy stocks, and you'll likely get the same two words for an answer: It depends.
You'll then get a couple of questions: What's your risk tolerance? What's your timeline?
If you have either a low risk threshold or need the money in a few years' time, it's probably not a good time to buy.
But if you possess the magical combination of having time on your side and the ability to shrug off volatility, history shows it's virtually always a good time to buy.
The equity-investing landscape has been especially difficult during the Trump era. The reaction to the president's wide-reaching tariff proposals extended a post-inauguration sell-off that pulled the S&P 500 nearly 20% lower in a matter of weeks. But as Trump has backtracked on certain levies, and as the economic picture has remained robust, the index has swiftly recovered well over half of that.
This dynamic was in full force on Monday as major US indexes soared more than 3% after the US and China agreed to substantial tariff cuts for 90 days.
This is the fourth installment of BI's six-part series on making major life decisions in periods of immense policy-driven change. We've already covered best practices for:
If you have a longer-term time horizon, history is on your side, according to Jeff Schulze, the head of economic and market strategy at ClearBridge Investments.
On a recent Franklin Templeton podcast, Schulze pointed out that in the 34 times over the last 75 years when a drawdown of 10% has occurred, the S&P 500 has averaged positive returns over the next 12 months. The forward one-year return is even stronger when a recession hasn't materialized, averaging 14% over time. And even when a recession has struck, 12-month returns have been positive, although to a lesser degree.
Still, every market cycle is different, and there are reasons to be concerned that a potential bear market this time around could be more severe.
For one, valuations on the S&P 500 have recently been at some of their highest levels in history. The Shiller cyclically adjusted price-to-earnings ratio, which looks at current stock prices compared to a rolling 10-year average of earnings, is still at about 33. That's higher than at the market's peak before the 1929 crash.
