• Going to cash when market volatility picks up is likely to lower long-term returns
  • The best and worst trading days often occur close together, making market timing very difficult.
  • The longer clients are invested, the higher the probability of a positive return from their investments.


Global stocks and bonds suffered significant declines in the first four months of 2022 and volatility has remained high in the early days of May.

Investors are challenged with how to respond – if at all – to both the simultaneous fall in stocks and bonds and muted expectations for market performance. Beyond disappointing short-term returns and a spike in volatility, investors face soaring inflation across most developed economies; the prospect of the end of a long era of ‘easy-money’ central bank policies; the war in Ukraine; and the effects of the Covid-19 pandemic, including economy-disrupting shutdowns in China. To cap off an already volatile period, the Federal Reserve (Fed) and Bank of England each raised their respective interest rates last week.

These economic and market woes might tempt some investors to withdraw from markets and go to cash, but that would be almost ensuring a negative return when taking into account the corrosive effects of inflation. As the charts below illustrate, the chances of a negative real return are much lower for stocks and bonds compared with cash, particularly as the holding period gets longer.

Note that our research is based on US data, but the broad findings we draw from it generally holds across markets – that riding out the rough periods can pay off.

Historical probability of negative return for various holding periods

Past performance is no guarantee of future returns. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.
Sources: Vanguard calculations. Data between 1 January1935 to 31 December 2021.
Notes: Returns calculated in USD and do not incorporate the reinvestment of income or dividends. When adjusted for inflation, US Treasury bills are more likely than stocks to have negative returns. A 60/40 portfolio has 36% less volatility than a 100% stock portfolio. Rolling return periods are based on quarterly return data. Nominal value is the value expressed in money of the day, while real value includes the effect of inflation. When determining which index to use and for what period, we selected the index that we deemed to be a fair representation of the characteristics of the referenced market, given the information currently available. For stock returns, we use the Standard & Poor’s (S&P) 90 Index from 1935 to 3 March 1957, the S&P 500 Index from 4 March 1957 to 31 December 1974, the Wilshire 5000 Index from 1 January 1975 to 22 April 2005, the MSCI US Broad Market Index from 23 April 2005 to 2 June 2013, and the CRSP US Total Market Index thereafter. For bond returns, we use the S&P High Grade Corporate Index from 1935 to 1968, the Citigroup High Grade Index from 1969 to 1972, the Lehman Brothers U.S. Long Credit AA Index from 1973 to 1975, the Bloomberg U.S. Aggregate Bond Index from 1976 to 2009, and the Bloomberg U.S. Aggregate Float Adjusted Bond Index thereafter. For Treasury bill returns, we used the Ibbotson 1-Month Treasury Bill Index from 1935 to 1977, and the FTSE 3-Month Treasury Bill Index thereafter.


Another reason for clients to stay invested and not time the market is that, historically, the best and worst trading days have come close together, making it difficult to avoid one without the other. Last week was a perfect example of that, with US stock prices surging on the day of the Fed’s rate-hike announcement, followed by a plunge the next day.

We should also note that some of the best trading days have occurred during periods of long market downturns, as shown in the chart below. Missing those key trading days lowers long-term returns.

S&P 500 Index daily returns

Past performance is no guarantee of future returns. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.
Sources: Vanguard calculations, based on data from Refinitiv using the Standard & Poor’s 500 Price Index. Data between 1 January 1980 to 31 December 2021.

The bottom line for clients is that sticking to the long-term investment strategy you have devised together may be the best route to investment success. Historically, investors with patience and a long-term perspective would have benefitted more from staying the course than trying to time the market when things get choppy.


1 Stocks are represented by the FTSE Global All Cap Index, which includes developed and emerging markets. Bonds are represented by the Bloomberg Global Aggregate Float-Adjusted Composite Index, which includes fixed-rate treasury, government-related, corporate, and securitized bonds from developed and emerging markets issuers with maturities of more than one year. Returns are in US dollars. 

Investment risk information

The value of investments, and the income from them, may fall or rise and investors may get back less than they invested.

Past performance is not a reliable indicator of future results.

Important information

For professional investors only (as defined under the MiFID II Directive) investing for their own account (including management companies (fund of funds) and professional clients investing on behalf of their discretionary clients). In Switzerland for professional investors only. Not to be distributed to the public.

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© 2022 Vanguard Asset Management, Limited. All rights reserved