The Value of Monthly Saving in a Downward Market
When the stock market falls, it is natural to feel concerned. However, for investors with a long time horizon, maintaining a regular monthly savings plan during a downturn is one of the most effective strategies for long term growth.
Investments involve risk.
Why Keep Saving When Prices Fall?
Continuing your monthly savings during a market correction offers two major advantages:
- Lower average purchase price: By investing a fixed amount each month, you buy more shares when prices are low. When the market eventually turns, your portfolio value recovers much faster than the broader index.
- No need to time the market: Predicting exactly when the market will hit bottom is nearly impossible. Monthly saving ensures you are already invested and participating when the recovery begins.
Historical Examples of Market Recoveries
We can look at two recent crises to see how monthly savers fared compared to the overall market (measured by the Stockholm Stock Exchange including dividends, SIXRX).
The 2020 Pandemic Crash
If you had started saving 1,000 SEK monthly just before the pandemic crash in February 2020:
- The stock market lost 35% of its value in just over a month.
- Because you continued buying at cheaper prices during the crash, your monthly savings portfolio recovered its full value in just under two months after the market bottomed.
- The overall stock market took seven months (until September 2020) to fully recover its pre-crash peak.
The 2022 Market Correction
If you had started saving 1,000 SEK monthly in January 2022:
- The market lost 33% of its value over nine months.
- After the market bottomed in September 2022, your monthly savings portfolio recovered its initial value in just over two months.
- The overall stock market took 28 months (until May 2024) to fully recover to its January 2022 levels.
Recovery Comparison Table
The table below demonstrates how a consistent monthly saving strategy dramatically accelerates recovery time compared to a lump-sum investment.
| Event | 2020 Pandemic | 2022 Correction |
|---|---|---|
| Market Peak Date | 19 February 2020 | 4 January 2022 |
| Market Bottom Date | 23 March 2020 | 29 September 2022 |
| Monthly Savings Recovered | 18 May 2020 | 1 December 2022 |
| Overall Market Recovered | 16 September 2020 | 7 May 2024 |
By staying the course and continuing to buy during downturns, a monthly saver significantly reduces the time required to recover from a market crash.
