This disturbing S&P 500 stat actually makes the case for index investing

Diversification can help keep your blood pressure under control

Investing can be scary. But that’s part of the deal. (Source: Getty Images)

Bloomberg’s Jonathan Ferro¹ has been sharing this interesting quote from Morgan Stanley addressing the year-to-date performance of the S&P 500.

…88% of S&P 500 members have experienced at least a 10% drawdown. Meanwhile, on a closing price basis, the index has only corrected by 5%. That is a historical anomaly.

That comes from Michael Wilson, the investment bank’s chief U.S. equity strategist and one of Wall Street’s most closely-followed stock market forecasters.

The quote is jarring. It’s disturbing to hear that almost all of the individual stocks in the S&P 500 have seen double-digit selloffs from their highs this year. And it’s unsettling that it’s a historical anomaly for those selloffs to occur despite a more modest decline at the index level.

But if you’re among the investors with an estimated $5.4 trillion parked in funds passively tracking the S&P 500, you might consider Wilson’s observation a perfect example of why people invest in broadly diversified index funds.²