The S&P 500 (^GSPC 0.13%) and the Dow Jones Industrial Average (^DJI -1.33%) sank earlier this month -- and the Nasdaq Composite (^IXIC -0.13%) even slipped into a bear market -- as one particular thing weighed on investors' minds. And that's President Donald Trump's plan to impose tariffs on imports. The concern is these duties will hurt U.S. companies that import parts and finished goods, increasing their costs or pressuring sales growth if they pass higher costs on to the consumer.
Across industries, U.S. companies rely on imports and bring across the border everything from fruit to textiles to electronics. Technology companies are particularly dependent on imports, and production abroad is a key part of their cost structure. A shift to production in the U.S. would require time and significant investment, and could hurt earnings. As a result, investors fled many of these stocks following Trump's tariff announcements. But then Trump walked back some tariffs, at least temporarily.
Stocks continue to shift from losses to gains amid ongoing uncertainty, and the three major benchmarks each have posted a loss since the start of the year. But before worrying too much about your portfolio's performance right now, it's important to take a look at one particular statistic. Let's check out the number every investor should remember during market downturns.
Image source: Getty Images.
Trump's tariff plan
First, though, a summary of the tariff issue and where things stand as of the writing of this article on April 15. Trump earlier this month announced his full plan, including tariff levels of more than 20% on countries from South Korea to India. He then decided on a 90-day pause so that the U.S. and various countries might negotiate. An exception is the tariff situation with China. After China launched tariffs, the U.S. raised tariffs on that country to 145%.
Meanwhile, to the relief of tech companies and their investors, Trump exempted electronics products from the tariffs but later suggested this exception could be temporary. All of this has caused turmoil in the market, with any good news spurring a surge in stocks and any bad news causing them to drop once again.
So now is the perfect time to talk about one number investors should remember during market downturns, and that is the number six: 6% to be specific.
In a study of the S&P 500 over time, the longer investors held onto stocks the more their chances of a negative outcome declined, according to Capital Group. History shows that in a one-year period, outcomes were negative 27% of the time over the past 96 years -- but this number dropped to 6% looking at 10-year holding periods. This means during those longer periods, positive outcomes happened 94% of the time.
A clearly positive trend
Of course, these are past averages, so the numbers probably won't be identical for every investor in each situation, but they do show a clearly positive trend for those who hold onto stocks over time. And that's why it's particularly important to consider this information during market downturns and times of turmoil.
You may be tempted to sell as you see your profit from a particular stock narrowing or disappearing, but if that company still has a solid long-term story, it's better to wait things out and stay invested. It's very likely the current loss on those shares will turn into a gain over the coming years as that company has time to recover from today's challenges and go on to grow once the general backdrop improves.
Each market downturn is different: Certain ones are longer, while others are shorter, and the source of the declines may vary from a difficult economic environment to government policies or other challenges. But history shows us one thing has been constant throughout the years, and that's the fact that indexes always have rebounded after tough times and advanced over the long run. On top of this, your likelihood of losing in the market decreases the longer you remain invested, so it's in your best interest to hang on throughout market cycles instead of bailing out early.
Amid today's uncertainty, remembering this point could help you maximize your chances of scoring an investment win.
