For many investors, it’s hard not to follow the daily fluctuations of the stock market. But day-to-day volatility is a reminder that stocks are best considered a long-term investment.
Part of the reason stocks have higher expected returns than bonds is uncertainty over shorter horizons. For example, the S&P 500 Index return was negative in about 24% of overlapping one-year periods from January 1926 through March 2025. The worst outcome over these one-year periods was about –68%, dropping $1 in invested capital to just $0.32.
Things have looked better over longer horizons, with the caveat that the number of independent observations among rolling return windows dwindles as the horizon lengthens—just five for the 20-year returns. But the frequency of negative returns decreases as the investment period expands, and no stretch over 184 months has been negative.
This is not to imply stocks are less risky in the long run. The range between best and worst outcomes becomes vast at the longer time horizons. But the data we have suggest the likelihood of losing money in stocks is far lower if they are viewed as long-term investments.
Of course, most investors also have short-term needs for their capital. That’s why most of us have a mix of stocks plus risk-management assets, such as bonds. A thoughtfully designed asset allocation helps balance short-term liabilities with long-term growth of wealth. And that’s a recipe for staying disciplined and paying less attention to the throes of stocks each day.
Exhibit 1
Growth of $1, S&P 500 Index
January 1926–March 2025
What This Means for Your Financial Plan
At Prosperity Capital Advisors, we understand that market volatility can be stressful. When you see your investments fluctuate day to day, it’s natural to wonder if you should be making changes to your portfolio. However, as the data above demonstrates, taking a longer view can help put these short-term movements into perspective.
This is precisely why we advocate for The Bucket Plan® approach to financial planning. By strategically organizing your assets into different “buckets” based on when you’ll need them, we help ensure you have:
- Security for your immediate needs
- Growth potential for your long-term goals
- Peace of mind knowing your financial plan is designed for both short and long-term success
When your long-term investments have time to weather market fluctuations, you can feel more confident about staying the course during periods of volatility.
Ready to build a financial strategy that embraces these long-term principles? Connect with a PCA advisor today to discuss how The Bucket Plan® can help you achieve your financial goals.
Past performance is no guarantee of future results.
Disclosure: Prosperity Capital Advisors prioritizes client interests with The Bucket Plan® methodology. We create strategies that protect you from short-term fluctuations while positioning your assets for long-term growth. Find your local PCA advisor today to learn how we can help you navigate market volatility with confidence.
This blog was created based on content from Dimensional Fund Advisors. The original article “Longer Horizons Look Better for Stocks” appeared in Above the Fray, a weekly newsletter for Dimensional clients. Learn more about Dimensional Fund Advisors here. The original post was published on April 29, 2025, and can be found here.