If you want the upside building wealth, you have to accept volatility and periodic declines that come with it. It’s the price of admission for long-term investment success.
If you’re not willing to react with equanimity to a market price decline of 50% two or three times a century, you’re not fit to be a common shareholder, and you deserve the mediocre result you’re going to get.
In other words, the market only offers two to three perfect buying opportunities per century, and you absolutely should not miss them.
Expected Annual Return = (1 + % needed to recover to peak) ^ (1 / Years to Recover) - 1
pow(1.5,1/5)-1
If the market has already fallen 33%, it needs to rise 50% to recover. If this recovery happens within one year, buying at -30% will yield a 50% return when it reaches the same level. Even if the market takes 5 years to recover, you can still achieve an 8% return.
In fact, during the 2008 financial crisis, it took the market 5 years to recover to its previous high. During the 2020 COVID-19 period, it only took 9 months for the market to recover to its peak.