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1. History Favors a Return to the Mean

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Short-term volatility has always been a part of equity investing, but investors have benefited from the market’s long-term upward trend. Investors concerned about volatility would be wise to look closely at the market’s long-term history, especially following periods of weak returns.  

History Shows Positive Returns Have Outweighed Negative Returns

 

Annual Returns of the S&P 500 Index – Positive vs. Negative

S&P 500 Index Annual Returns

Chart is for illustrative purposes only and does not reflect the performance of any Franklin, Templeton or Franklin Mutual Series fund.

Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results. Source: © 2014 Morningstar. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.

As you can see above, annual returns were positive approximately 73% of the time. Measuring returns over 10-year time periods, results worked in investors’ favor 95% of the time.


10-Year Returns of the S&P 500 Index — Positive vs. NegativeLook at returns over a longer time frame. A 10-year perspective has worked in an investor's favor 95% of the time.

Chart is for illustrative purposes only and does not reflect the performance of any Franklin, Templeton or Franklin Mutual Series fund.

Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results. Source: © 2014 Morningstar. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.

What Happened Next?

As you can see below, the historical 10-year average annual returns following the worst 10-year period average annual returns since 1926 have benefited those who were invested in stocks. The decade ahead remains a question mark.

S&P 500 Index Worst 10-Year Average Annual Returns with Subsequent 10-Year Average Annual Returns

Chart is for illustrative purposes only and does not reflect the performance of any Franklin, Templeton or Franklin Mutual Series fund.

Source: © 2014 Morningstar. Indexes are unmanaged, and one cannot invest directly in an index. The 10-year periods ended 2008 and 2009 were included as part of the worst 10-year average annual returns for the S&P 500 Index despite subsequent 10-year results not being available for the years past 2003. For the 10-year periods ended 2011, 2012 and 2013, the S&P 500 Index returned 2.92%, 7.10% and 7.41%, respectively. Past performance does not guarantee future results.

The Bottom Line

While many extrapolate trends into the future, market history tells a different story.

  • Following a negative 10-year return, the subsequent historical 10-year return was positive.
  • After the eight worst 10-year returns prior to 2008, the subsequent 10-year cumulative return was in excess of 100%, and on average the 10-year average annual return was greater than 12%.


Another reason to be an equity investor: The World is Getting Smaller (and More Prosperous)


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All investments involve risks, including possible loss of principal. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions.

For more information on any of our funds, contact your financial advisor or download a free prospectus. Investors should carefully consider a fund’s investment goals, risks, sales charges and expenses before investing. The prospectus contains this and other information. Please read the prospectus carefully before investing or sending money.

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