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Positive Probability: Are the Odds in Your Favor?

By Stephen So, CIMA® , Vice President, Investment Portfolio Manager
Positive Probability: Are the Odds in Your Favor?

Patience is an important trait an investor should possess for the best chance of results.

With the speed and availability in which information gets circulated, it’s human nature to seek instant gratification.  If an investor can weather the stock market’s near-term gyrations (a.k.a. volatility) and remain invested over the long-term by staying the course, they should be rewarded.

Probability of Positive Returns for Different Holding Periods for the S&P 500 Index (January 1950 – March 2024):

Rolling 1 Year – 79%

Rolling 3 Year – 90%

Rolling 5 Year – 93%

Rolling 10 Year – 97%

Source: Crandall, Pierce & Company

The longer the investment time horizon, the greater the chance of having a positive return experience, and essentially making a negative result de minimis.  Another way of looking at the odds is that over the past approximate century (since 1928), the broad stock market (as measured by the S&P 500 Index) has generated a positive return 3 out of every 4 years with an average return of +21%, and 1 out of every 4 years has incurred a negative return which averaged -13%; when combined the average return = +12%.

A patient investor is similar to a casino in the sense that the longer the time frame, the odds of winning shift in the favor of both the investor and casino alike.

Disclaimer: The commentary provided is for informational purposes only and is not intended to provide legal, tax, investment, or accounting advice.

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