Are you wondering how much does the stock market move on average a day? The stock market does look like it is getting more volatile by the year, especially after the 32% correction in March 2020.
Investing in the stock market is one of the best ways to build wealth over the long-term. Since 1926, the S&P 500 index has returned about 10% on average.
But since 1926, there have been a series of bear markets that can shake out weak hands.
If you are going to risk your hard-earned savings in the stock market, then it's a good idea to understand how much the stock market moves a day on average.
Too many people over the years get freaked out by stock market volatility and panic sell, like they did during the 2008-2009 financial crisis and in March 2020.
For example, the median net worth of the middle class peaked in 2007 at $118,025. Today, the middle class median net worth is only about $88,000 according to the latest Survey of Consumer Finances by the Federal Reserve. Why? Because the middle class didn't hold on for the long-term.
How Much The Stock Market Move On Average A Day
From 1999 – 2019, the stock market as defined by the S&P 500 moves on average -1% and +1% a day, for 70% of the days. Below is a fantastic graphical representation of stock market daily volatility.
The reason why it's important to know about the average daily stock market move is so that you won't feel as panicked when you see bigger down swings in the market. Having the calmness and fortitude to keep on dollar-cost-average no matter what is the key to long-term wealth.
If you are a long-term investor in the capital accumulation phase, you should consider buying more than your normal investing cadence when the S&P 500 is down greater than 1%. About 20% of the time, the stock market moves -2% and +2%. Meanwhile, about 10% of the time, the stock market moves -3% and +3%.
If you're in capital preservation mode, you might consider selling some of your S&P 500 index position when the S&P 500 is up greater than 1%.
Your goal is to not try and outperform the S&P 500. Instead, your goal is to figure out how to best invest our cash flow, or larger-than-normal cash injections, during the capital accumulation phase and vice versa.
Here's another historical average daily percent change chart for good measure. It shows that between 1928 – 2017, the historical daily absolute percentage change in the stock market through 188 trading days is -0.73% to +0.73%.
Historical Downturns In The Stock MArket
We've had 11 bear markets since 1929. A bear market is defined as a 20% or greater sell-off. Let's look at what happened during the three most recent bear markets to see what's possible.
August 1987 to December 1987
On October 19, 1987, the Dow fell 22.6 percent – the worst day since the Panic of 1914. By early December, the market had bottomed out and a new bull run had started. From August to December, the S&P 500 lost 33.5 percent. Thankfully, this bear market only lasted three months.
March 2000 to October 2002
The NASDAQ bubble burst on March 11, 2000. I remember sitting on the trading floor watching all my B2B and internet stocks start plummeting by 10%+ for no reason. Over the next nine months, the NASDAQ declined by 50 percent and I finally gave up hoping the dotcom mania would come back. The S&P 500 went from a high of 1,527 to a low of 777 for a 49 percent decline over 30 months.
October 2007 to March 2009
The housing collapse was the most brutal collapse for the majority of Americans alive today. Not only did the real estate market get crushed, the S&P 500 declined from a high of 1,565 on Oct 9, 2007 to a low of 682 on March 5, 2009, a 56.4 percent decline. The bear market lasted 17 months, which at the time, felt much longer.
Based on these past three bear markets, we shouldn't be surprised to see another decline of 30% – 55% over a 3 – 30 month period. Therefore, if you are in the capital accumulation phase and are bearish, you might want to start legging in only after a 2% or 3% decline instead of just a 1% decline.
Below is a chart that shows the historical movements of the S&P 500. Essentially, you want to be de-risking the higher above the red trend line and adding to positions the further you are below the red trend line.
Find Your Investing Comfort Zone
You must find an investing methodology that makes you feel comfortable. Otherwise, you will under-invest or never invest. If you fail to invest consistently, you will fall behind and end up like the middl class with only an $88,000 median net worth.
In contrast, the top 1 percent have a median net worth of $10,700,000 because they own risk assets like stocks and real estate over the long term. Sure, they experience more volatility on the downside. But when there's a 10-year bull market, the rich get much richer.
Since 1950 the S&P 500 has seen an intra-year drawdown of 5% or worse more than ~90% of the years. ~40% of the years, the S&P 500 has fallen 5% to 10% intra-year. ~38% of the years, the S&P 500 has fallen 10% to 20% intra-year. ~16% of the years, the S&P 500 has fallen in excess of 20% intra-year.
It takes a tremendous amount of discipline to always pay attention to your cash flow and then have the confidence to invest it in the stock market. As a result, most people fail to regularly invest.
For your after-tax investment accounts, the easiest way to invest is to go through a low-cost digital wealth manager like Betterment that automatically invests your money into a risk-appropriate portfolio. Link your checking account to automatically contribute a set amount so you don't have to think about it.
For building a healthy real estate portfolio, I think it's wise to own your primary residence if you plan to live in one city for more than five years. You want to ride the inflation way and keep your housing costs fixed.
The easiest way to build a diversified real estate portfolio is through a publicly traded REIT like VNQ and through real estate crowdfunding.
My favorite real estate crowdfunding platform is Fundrise, where you can gain more specific exposure to certain parts of the country or specific commercial properties. It's free to sign up and explore. Below are some examples.
I've personally invested $810,000 in real estate crowdfunding to take advantage of lower priced properties with higher net rental yields in the heartland of America. Technology is making mobile work more common. I believe there will be a multi-decade migration trend away from expensive coastal cities as a result,