Bank of America Merrill Lynch's Subramanian shared a chart that does a nice job of illustrating the roller-coaster ride that stock market investors actually experience.
She reviewed 12 major S&P 500 peaks since 1930 and averaged the price performance during the months leading into the peak and the months after.
To be clear, this is just a summary of what has happened in the past around market peaks. In between these events are long periods of lackluster action in the markets. Having said that, there are a couple of things to take away from Subramanian's research:
Returns are very strong in the months leading up to a peak. The median returns in during the six months and 12 months before a peak were 14% and 21%, respectively. An investor seeking gains probably wants to be part of that action.
Declines after a peak are bad, but they don't offset the gains. The median returns in during the six months and 12 months after a peak were -12% and -15%, respectively.
But even after the violent sell-offs, markets recover losses in two years. The median return 24 months after a peak is -1%, meaning that most of the losses seen in the six-month and 12-month periods are recovered for patient investors. If anything, downturns areopportunities for investors to buy more and lower their average costs.