That’s incredible.

Keep in mind that neither of these graphs account for dividends, either.

The Takeaway

This thought experiment illustrates two points:

1. The S&P 500 rally over the last two years in particular has been phenomenal. A 25.9% correction, equivalent to the fourth-worst S&P 500 annual return ever, would set investors back less than two years.

2. The investors who have remained in the market over the last nine years have been handsomely rewarded. Even a 1931-Style 43.84% drop wouldn’t be enough to take away the gains from money invested during 2009 – 2013.

Portfolio Size Matters

As I wrote in this post, the size of your portfolio determines how much investment returns matter. If we do experience a ~37% drop in price, like we saw in 2008, here’s how different-sized portfolios would be impacted:

(The left side of this graph shows how much money you would lose if all of your portfolio was invested in the S&P 500 and we experienced a 37% drop. It’s titled “Worst Year Ever” because I only considered returns since 1950 in that post.)


Notice how smaller portfolios are hardly impacted by market drops. For someone like me, with close to $60k invested in stocks alone, this type of drop would result in a $21,930 loss. At the moment, I’m able to save close to $50,000 per year, which means my net worth would still increase over the course of the coming year, despite a market drop.

As a young person, with a long investing time horizon, I wouldn’t be fazed by a market crash. I would simply gobble up more shares at cheaper prices and let compound interest do it’s work over the next several decades.

Yesterday I picked up a few shares of VTI (Vanguard Total Stock Market ETF) and I plan to continue doing so if the market keeps declining. I don’t care what type of returns I earn over the coming days, weeks, or months. I am more concerned with building wealth over the course of decades. For me, a market drop is simply an opportunity to invest at cheaper prices.

If you’re looking for some great investing wisdom from someone much wiser and more experienced than myself, check out Jim Collin’s Stock Series. It’s a massive 31-part series (and growing) on the nature of the stock market, how to think about market crashes, and where to invest your money for the long haul.