Why 50 Years of Market History Say ‘Doing Nothing’ Is the Best Response to a Downturn

Key Points

Winnie the Pooh probably isn’t the first character that comes to mind when thinking of Wall Street gurus, yet the honey-loving bear offered some remarkably sage investing advice: “Doing nothing often leads to the very best of something.” Looking at 50 years of market history, this whimsical philosophy holds a profound truth for long-term investors. Here is why staying the course is the ultimate strategy during market downturns.

The S&P 500’s Long-Term Ascent

Legendary investor Warren Buffett, the former CEO of Berkshire Hathaway, once noted that investing is not about having an exceptionally high IQ, but rather about having the temperament to control the urges that lead other investors astray. This temperament is where Buffett’s practical wisdom intersects with the philosophy of Winnie the Pooh.

The historical performance of the S&P 500 index demonstrates that the market operates in a zigzag pattern of bull and bear cycles, yet trends upward over the long term. Simply buying and holding the index has historically yielded outstanding returns for those who had the patience to ignore short-term volatility.

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As the historical chart below illustrates, a long-term investor who consistently held the S&P 500 index over the past 50 years would have achieved positive returns, provided they possessed the emotional discipline to do nothing while the market gyrated in the short term.

^SPX data by YCharts

In fact, Buffett has often suggested that the average investor would be better off simply buying and holding a low-cost S&P 500 index fund, such as the SPDR S&P 500 ETF or the Vanguard S&P 500 ETF, rather than trying to time the market.

Embracing Dollar-Cost Averaging

Buying at regular intervals, regardless of market conditions—a strategy known as dollar-cost averaging—is a powerful wealth-building tool. The real key to success, however, is avoiding market timing. Attempting to predict short-term price movements is incredibly difficult, if not impossible, to execute successfully over the long term. Market timing represents one of the primary “urges” that derail investors.

By maintaining the right temperament and channeling your inner Winnie the Pooh, you can stick to your original investment plan during a market downturn. In the end, the evidence from 50 years of Wall Street history shows that doing nothing—other than continuing your disciplined, long-term buying and holding—remains the single best response to market volatility.

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