Investor resource:

A guide to market fluctuations

Keys to prevailing through stock market declines

During periods of volatility in the stock market you may have doubts about your long-term
investment strategy. Here are five tips to help you avoid common pitfalls and stay on track
toward achieving your financial goals.

1. Declines have been common and temporary occurrences.

Problem: Declines can cause imprudent behavior by filling investors with dread “The market is the most
and panic. efficient mechanism
Solution: Realize that declines are inevitable and have not lasted forever. anywhere in the world
History has shown that stock market declines are a natural part of investing.
for transferring wealth
While declines have varied in intensity and frequency, they have been somewhat from impatient people
regular events. to patient people.”
It may also reassure you to know that the market has always recovered from declines. — Warren Buffett
Although past results don’t guarantee future results, remembering that downturns
have been temporary may help assuage your fears.

The bottom line? Accept declines as a normal part of the investment cycle.

A history of market declines

Standard & Poor’s 500 Composite Index (1951–2020)

Size of decline –5% or more –10% or more –15% or more –20% or more

About three About once About once every About once every
Average frequency*
times per year per year three years six years

Average length† 43 days 110 days 251 days 370 days

Last occurrence October 2020 September 2020 March 2020 March 2020

*
Assumes 50% recovery of lost value.
†
Measures market high to market low.

Sources: Capital Group, Standard & Poor’s.

Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.
Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information
is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and
should be read carefully before investing.

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2. Proper perspective can help you remain calm.
Problem: Studies show that people place The stock market has a reassuring history of recoveries. After hitting lows in August
too much emphasis on recent events and 1939 and September 1974, the Standard & Poor’s 500 Composite Index bounced
disregard long-term realities. back strong, averaging annual total returns of more than 15% over the next 10 rolling
10-year periods in both cases.
Solution: Even amid a market downturn,
remember that stocks have rewarded Long-term investors have been rewarded. Even including downturns, the S&P 500’s
investors over time. mean return over all rolling 10-year periods from 1937 to June 2021 was 10.54%.

The bottom line? A long-term perspective can help you prevail through challenging times.

S&P 500 rolling 10-year average annual total returns

December 31, 1937–June 30, 2021

25%

Average annual return for

10 years ended 6/30/21
20
14.84%

15

Mean = 10.54%
10

8/31/29–8/31/39 = –5.03% 9/30/64–9/30/74 = 0.49%

Returns for ensuing Returns for ensuing
5 10-year periods ended 8/31 10-year periods ended 9/30
1939–1949 9.18% 1974–1984 15.63%
1940–1950 12.10 1975–1985 13.48
1941–1951 15.09 1976–1986 13.59
1942–1952 17.87 1977–1987 18.25
0
1943–1953 13.43 1978–1988 15.39
1944–1954 15.32 1979–1989 17.33
1945–1955 17.37 1980–1990 13.98
1946–1956 17.67 1981–1991 17.43
–5 1947–1957 17.91 1982–1992 17.55
1948–1958 17.89 1983–1993 14.71

Average 15.38 Average 15.74

1937 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

Sources: Capital Group, Morningstar, RIMES, Standard & Poor’s. As of 6/30/21.

Results are calculated on a monthly basis. The index is unmanaged and, therefore, has no expenses. Investors cannot invest directly in an index.
Past results are not predictive of results in future periods.
The Standard & Poor’s 500 Composite Index is a market capitalization-weighted index based on the results of approximately 500 widely held
common stocks.
The S&P 500 Composite Index (“Index”) is a product of S&P Dow Jones Indices LLC and/or its affiliates and has been licensed for use by Capital
Group. Copyright © 2021 S&P Dow Jones Indices LLC, a division of S&P Global, and/or its affiliates. All rights reserved. Redistribution or
reproduction in whole or in part are prohibited without written permission of S&P Dow Jones Indices LLC.

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 3. Don’t try to time the market.
Problem: Research has shown that The market has shown resilience. Every S&P 500 downturn of about 15% or more
losses feel twice as bad as gains feel since the 1930s has been followed by a recovery.
good.
Recoveries have been strong. Returns in the first year after the five biggest market
Solution: Keep in mind that fleeing the declines since 1929 ranged from 36.16% to 137.60%, and averaged 70.95%. Over a
market to reduce losses could mean longer term, the average value of an investment more than doubled over the five
losing out on gains when stocks recover.
years after each market low.
Don’t miss out on potential market rebounds. Although recoveries aren’t guaranteed,
taking your money out of the market during declines means that if you don’t get
back in at the right time, you’ll miss the full benefit of market recoveries.

The bottom line? Consider staying invested — and don’t try to time the market.

Five biggest market declines and subsequent five-year periods*

1929–2020

9/7/29–6/1/32 3/6/37–4/28/42 1/11/73–10/3/74 3/24/00–10/9/02 10/9/07–3/9/09

Decline –86.22% –60.01% –48.20% –49.15% –56.78% Average

1st yr. 137.60% 64.26% 44.43% 36.16% 72.29% 70.95%

S&P 500
12-month
returns† 2nd yr. 0.52% 8.96 25.99 9.91 18.08 12.69
after low
3rd yr. 6.42% 31.08 -2.86 8.51 6.10 9.85

23 Positive
periods 4th yr. 56.68% 32.19 11.79 15.11 15.74 26.30
Negative
2
periods
5th yr. 16.52% -19.89 12.82 18.06 23.65 10.23

Five-year average
annual total return 35.93% 19.96 17.39 17.15 25.30 23.15

Value of a $10,000
investment in the $46,401 $24,841 $22,293 $22,067 $30,890 $28,322
S&P 500 at the end of
the five-year period

*
Market downturns are based on the five largest declines in the S&P 500’s value (excluding dividends and/or distributions) with 50% recovery
after each decline.
†
The return for each of the five years after a low is a 12-month return based on the date of the low. For example, the first year is the 12-month
period from 3/9/09 to 3/9/10.
The percentage decline is based on the index value of the unmanaged S&P 500, excluding dividends and/or distributions. Each market decline
reflects a period of more than 80 days with 100% recovery after each decline (except for a 77% recovery between 3/9/09 and 4/29/11). The
average annual total returns and hypothetical investment results include reinvested dividends and/or distributions but do not reflect the effect of
sales charges, commissions, account fees, expenses or taxes. Investors cannot invest directly in an index. Past results are not predictive of results in
future periods.

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 4. Capital Group, home of American Funds, has helped Strategies to get through
investors prevail through market declines. turbulent times
It’s difficult to see the value of
Problem: Market indexes don’t tell the whole story and can needlessly alarm investors.
your investments fall. But during
Solution: Consider investing in funds run by investment managers who have proven challenging times, try to keep
long-term track records. some fundamental investing
principles in mind:
Certain skilled investment managers have superior long-term track records. American
Look beyond the headlines.
Funds is among those proven managers with a long history of success, stemming Sensational news headlines
from our long-term perspective and our emphasis on producing results that are less are meant to grab your attention,
volatile than the broad market. but it can be dangerous to let the
media influence your investment
Equity funds have beaten their Lipper peer indexes in 91% of 10-year periods and 98% decisions. Ignore the noise
of 20-year periods.* Fixed income funds have helped investors achieve diversification and stay focused on your goals.
through attention to correlation between bonds and equities.† These periods include
Don’t forget history. Market
good times and bad.
declines are part of the economic
cycle. Historically, recoveries have
Invest for the long term with an investment manager that followed downturns.

Printed on recycled paper

The bottom line? has a proven track record of success — in downturns as well
as in bull markets. Maintain a diversified portfolio.
Different investments may go
up and down at different times.
Spreading your money over a
variety of investment types
5. Emotions can cloud your judgment. and regions can help reduce
volatility in your overall portfolio.
Problem: Investors often make poor decisions when they let their emotions take over.
Don’t try to time the market. No
Solution: Stay focused on your long-term goals and carefully consider your options. one knows the perfect times

Lit. No. MFGEBR-051-0821P  Litho in USA  CGD/CNP/10623-S87030  © 2021 Capital Group. All rights reserved. 
to get in and out of the market.
Have you heard the investment Consider holding quality
R K E T TO P
adage, “buy low, sell high”? Strong MA
investments with the potential
ICES HIGH
emotions during market swings PR to rise in value over the long term.
R S OFTEN BUY
can tempt you to do the opposite VE
S TO HE
RE
IN
Invest regularly, even when the
— buy high and sell low.
market is falling. Instead of fearing
DECLINING

You may also feel that doing down markets, think of them as
RISING

opportunities to invest at lower

something — anything — during a
EMOTION prices.
downturn is better than doing
nothing. Although inaction might IN
Keep in touch with your financial
seem counterintuitive, staying
VE
ST
OR HE
RE
professional. Your financial advisor
S OFTEN S ELL

invested in the market could be PR

can help you avoid making
ICES LOW
decisions that could jeopardize
the better choice. MA M
RKET
B OTTO your long-term investment goals,
which often remain unchanged
during market declines.
The bottom line? Avoid making rash decisions based on emotions.

*
 ased on Class F-2 share results for rolling calendar-year periods starting the first full calendar year after each fund’s inception through December
B
31, 2020. Periods covered are the shorter of the fund’s lifetime or since the comparable Lipper index inception date (except Capital Income Builder
and SMALLCAP World Fund, for which the Lipper average was used). Expenses differ for each share class, so results will vary.
†
Based on Class F-2 share results, as of December 31, 2020. Thirteen of our 17 American Funds fixed income funds that have been in existence for
the three-year period showed a three-year correlation below 0.3. Standard & Poor’s 500 Composite Index was used as an equity market proxy.
Correlation based on monthly total returns. Correlation is a statistical measure of how two securities move in relation to each other. A correlation
ranges from –1 to 1. A positive correlation close to 1 implies that as one security moves, either up or down, the other security will move in “lock-
step,” in the same direction. A negative correlation close to –1 indicates that the securities have moved in the opposite direction.
All Capital Group trademarks mentioned are owned by The Capital Group Companies, Inc., an affiliated company or fund. All other company and
product names mentioned are the property of their respective companies.
This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not
intended to serve as impartial investment or fiduciary advice.
American Funds Distributors, Inc., member FINRA.