Sitting out August's stock-market selloff paid off for retail investors

By Gordon Gottsegen

Most retail investors didn't trade during the Aug. 5 selloff, and those who did largely bought the dip

The stock market saw its worst day of 2024 on Aug. 5 when a rise in unemployment led to heightened fears about a recession. The Dow Jones Industrial Average DJIA declined 2.6% that day, while the S&P 500 SPX dropped 3% and Nasdaq Composite COMP fell 3.4%.

Yet even though the market panicked that day, retail investors did not.

Recent data from asset manager Vanguard showed that 97.5% of surveyed investors on its platform did not trade on Aug. 5. Of those that did trade, 73% bought the dip, while only 17% were panic sellers.

"Even in the face of dire headlines in the financial press, investors were far more likely to stay the course or buy at a discount than they were to panic sell," Thomas De Luca, a senior researcher with the Vanguard Investment Strategy Group, said in a statement. "Discipline in the face of volatility is encouraging because it's one of the most important factors that predict long-term investment success."

That strategy paid off for retail investors, with the S&P 500 bouncing back over 10% from Aug. 5 to market close on Sept. 24. The retail investors who bought the dip around this time may have caught some of those gains. Even if they didn't, they might still be ahead, because the S&P 500 surpassed all-time highs in September. By selling, on the other hand, retail investors would have missed the rally.

Also read: Retail investors sat out this week's wild market swings by trading fewer options

On top of remaining zen through the market turmoil, retail investors are pretty bullish about future stock-market returns, according to Vanguard. The asset manager found that on average, retail investors expected a 6.2% stock-market return in the 12 months following August. They also thought there was only a 4.4% chance of a stock-market disaster, which Vanguard defined as a drop of 30% or more, in the next 12 months.

"Investors were not only unfazed by the short-lived market selloff and some acceleration in the unemployment rate," Andy Reed, head of investor behavior research at Vanguard, said in a statement. "They have been feeling downright bullish, buoyed by steady economic growth, declining inflation and a resilient market."

-Gordon Gottsegen

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09-25-24 1217ET

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