Market watchers know the S&P 500 index has dropped almost 20% from its high, which would officially bring it to the level of a bear market. And the tech-heavy Nasdaq Composite index has already surpassed that level, nearly 30% below its record level.
The seemingly endless flow of daily market drops can weigh on investors and create anxiety. But there's one way to turn a difficult situation into a positive. A look at previous severe market declines shows they have been good times to boost future returns with the right investments. And there's no reason to think the current one will be any different.
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History as a guide
Every investor should step back and look at the market from the right perspective. A look back at the 25-year total return of the S&P 500 total gives some of that perspective when looking at bear markets from several years ago. The below chart, for example, makes the big drop during the Great Recession of 2008/2009 look more like a minor blip in the big scheme of things.
It's normal for it to feel scary when a market drop is seemingly endless. But investments made during previous slides have actually provided an extra boost to overall returns.
It can feel daunting
While seemingly everything is in a rut, investors may feel conflicted about what to do. You don't have to overthink it or seek to recoup losses in risky stocks that were poorly timed purchases in hindsight. One can look at some well-known businesses and keep it simple.
Home Depot (HD -1.17%), Target (TGT -1.28%), and Costco (COST -0.29%) all fit the bill. Each name from that trio has crushed the S&P 500 in total returns over the past 25 years.
Of course, investors that buy now want to know what will likely happen going forward. And short-term headwinds notwithstanding, the past success of these businesses should continue over the long haul.
Recent business interruptions
Home Depot, Target, and Costco all thrived from consumer habits during the pandemic. But many businesses, and especially retailers, are currently battling supply chain disruptions, rising input costs, and some uncertainty about the strength of consumer spending. Home Depot stands out as one that has found a way to successfully navigate the environment thus far.
In 2017 Home Depot launched an $11 billion investment program called One Home Depot. It focuses on the digital, online business as well as attracting more professional customers. Online sales contributed greatly to its 20% and 14.4% annual sales growth in fiscal 2020 and 2021, respectively.
More recently, the One Home Depot program has been paying dividends through its growing business with professionals. In its fiscal 2022 first quarter ended May 1, the company reported a year over year increase of 11.4% in customer average spending per transaction. That is mainly attributable to the growing professional customers. And while home improvement spending jumped over the last two years, its growth is expected to continue.
Home Depot is well-positioned to continue to benefit from increased home improvement spending.
Take the right perspective
While Target and Costco may have a more difficult time due to the nature of the near-term headwinds, investors should be in the market for the long term, regardless of when one makes an investment.
But the long-term perspective is most important in trying times like now when stocks as a whole are plunging. One of the best long-term investment strategies is to be brave enough to buy during the biggest dips. And that can be made easier by investing in established, well-known businesses.
