Daily Losses vs Long-Term Outcomes

Why Short-Term Data Misleads Long-Term Investors

Investors often experience a frustrating paradox:

• Markets feel risky day to day

• Yet long-term outcomes are overwhelmingly positive

Both statements are true. The confusion comes from misunderstanding how risk changes with time. Using daily U.S. Total Stock Market data, we can measure exactly how often investors lose money at different holding periods—and why short-term market data creates a distorted view of long-term risk.

Daily Losses Are Common

Start with the reality of daily market movements. When viewed one day at a time:

• 44.6% of all trading days are negative

• Losses occur almost as often as gains

• Short-term outcomes are noisy, frequent, and emotionally salient

If you monitor markets daily, it is normal to feel discomfort. That discomfort is not a signal of poor long-term prospects—it is simply how markets behave over short horizons.

Risk Depends on the Holding Period

Instead of asking, “Was the market down today?”, a more useful question is:

“What is the probability of losing money if I stay invested for X years?”

Using rolling returns from daily data, we can compute the probability of loss for different holding periods.

Probability of Loss by Holding Period

Holding period	Probability of loss
1 day	44.6%
1 week	41.4%
1 month	36.7%
3 months	32.3%
6 months	28.7%
1 year	25.4%
3 years	16.2%
5 years	12.1%
10 years	4.4%

The pattern is clear: the probability of loss falls steadily as the holding period increases.

Probability of Loss vs Holding Period

Probability of loss by holding period using historical U.S. stock market data.

This chart shows the same information visually.

• The horizontal axis shows the holding period

• The vertical axis shows the probability of losing money

• Each point represents thousands of rolling historical outcomes

Two things stand out immediately:

1. Short-term investing is inherently risky. Nearly half of all one-day periods lose money.

2. Time steadily overwhelms volatility. Over longer horizons, losses become less frequent—and eventually rare.

Why Daily Data Distorts Perception

Daily market data answers the wrong question for long-term investors.

Daily data answers:

“Was the market down today?”

Long-term investors care about:

“Will this investment meet my goals over time?”

Almost half of all days are down days.Yet the vast majority of long-term periods are up periods. Confusing these two perspectives leads investors to overestimate risk and underestimate the power of patience.

The Compounding Effect

Losses tend to be temporary. Gains tend to compound.

As time passes:

• Recoveries overlap

• Short-term declines are diluted

• Long-term outcomes become dominated by growth, not volatility

This is why markets feel chaotic in the short run but disciplined in the long run.

The Behavioural Trap

Responding to daily market moves has an unintended consequence.

Each time an investor reacts to short-term volatility:

• Their effective holding period resets to one day

• They move back into the part of the distribution where losses are common

• They trade long-term probabilities for short-term noise

This is not risk management. It is risk amplification.

The Takeaway

Risk shrinks as the holding period grows.

Not because markets stop fluctuating—but because time allows compounding to dominate volatility. For long-term investors, the greatest risk is not market declines. It is behaving like a short-term investor with long-term goals.

---

Dr. Andy Lawson is the principal of Freshfield Investments, a Registered Investment Advisory firm in Plano, Texas serving clients locally and nationwide. Freshfield provides investment management and financial planning as a fee-only, fiduciary. To book a virtual or in-person complimentary consultation, please visit our Contact page.

---

Data source: Kenneth R. French Data Library, Tuck School of Business, Dartmouth College