In How Many Years Since 1926 Have Stocks Lost Money?
Understand the true frequency of stock market losses since 1926 and what it means for long-term investors.
The stock market’s daily fluctuations can naturally lead to questions about its reliability as an investment. Many people wonder about the frequency of downturns, especially when considering long-term financial planning. This article clarifies how often the stock market, using a broad market index, has experienced annual losses since 1926.
Historical Stock Market Performance
Since 1926, the S&P 500, when accounting for total return which includes reinvested dividends, has experienced annual losses in 22 years. This data spans nearly a century. This means that out of approximately 99 years, around 22% have seen negative annual returns.
Notable periods of decline include consecutive negative returns during the Great Depression from 1929 to 1932, and again in the mid-1970s with losses in 1973, 1974, and 1977. More recently, investors witnessed negative total returns in 2000, 2001, 2002, 2008, 2018, and 2022. While these down years are less frequent than up years, some involved significant percentage drops, showing the potential for short-term volatility.
Defining Stock Market Losses
Understanding what constitutes a “loss” in stock market performance data is important. Financial experts refer to “total return,” which measures performance. This differs from “price return,” which only reflects changes in an index’s market value.
Total return includes both capital gains or losses from price changes and the income generated from reinvested dividends. Dividends, a portion of company profits distributed to shareholders, can significantly contribute to investment performance. An annual loss is determined when the total return for the year results in a negative figure. This method ensures the reported number of losing years reflects a decrease in investment value.
The Long-Term Perspective
Despite losing years, the stock market has historically demonstrated an upward trend over the long term. These periods of decline are a normal aspect of market cycles, often followed by periods of recovery and growth. Even after significant downturns, the market has shown resilience, with returns averaging positively over extended periods. This long-term perspective suggests that short-term volatility, while potentially unsettling, often smooths out for investors who maintain their positions. Patient investors who remain invested through various market conditions tend to benefit from the market’s historical tendency to generate wealth over decades.