I’m no psychic. But I bet I can still correctly divine what’s on most investors’ minds these days.

Pessimism, bordering on despair …

Have you been reading the headlines, viewing your investment portfolio, and assuming the worst is yet to come? Welcome to your painful crash course on what market risk really looks like—and more importantly, how it feels.

Most investors say they’re ok living with periodic market risk, as long as it helps them achieve better returns over the long run. We accept (in theory) that tolerating the interim damage done to our own investment portfolios will help us meet our long-term financial goals.

But that’s investment risk in theory. Since it’s been a long time since we’ve encountered an extended bear market climate, you may have forgotten or never known the reality of it. It may not have clicked then, when significant market declines happen, it is usually due to despairingly bad news … amplified by headlines screaming how things are only going to get worse from here.

The reality is, when we’re in the middle of a storm of stuff, our behavioural biases make it very difficult to believe we’ll ever see better days.

Now and Then Investment News

History informs us otherwise. Even in the current climate, there have been plenty of days when stock markets have delivered positive outcomes. Some days, it’s even been very positive.

How does the popular financial media (aka, “group think central”) report the good news? They have a gloomy story to tell, because that’s what’s been selling lately. So, they dig up market pundits who downplay the uptick. They discount the event as being a “short covering,” “relief rally,” “dead cat bounce,” or some other meaningless adage, rather than accurately reporting that this is just how efficient markets operate every day. Without a scrap of plausible evidence, their confident conclusion is that the markets must soon continue their downward spiral.

A relevant question is: What is the pundit’s track record? You have to dig hard to find the data, but even those with the best reputation score less than a coin flip across their body of forecasts. (Actually only 46.9% accurate according to this study.)

On the subject of forecasting generally, David Booth, the co-founder of Dimensional Fund Advisors, recently offered this very practical insight:

Do you really want to invest your hard-earned savings—the money you’ll need for your kids’ college or your own retirement—based on someone’s hunch or wish?

What Goes Down …

From an analytic perspective, the general economy does have its work cut out for it over the foreseeable future. But, believe it or not, I remain optimistic about staying invested in our financial markets, and I think you should be too.

While I’m admittedly an optimist by nature, I’m also evidence-based. So, let’s look at what we know, and how it shapes what to prepare for—i.e., financial markets that should continue to deliver solid rewards to patient investors in the years ahead.

Let’s start with one of those pictures to replace a thousand words. Compliments of our friends at Dimensional Fund Advisors, here’s what U.S. stock and bond markets have done in the past after stumbling into bear market territories. Defying gravity, it would seem what goes down in financial markets has typically gone back up — and kept going over time.