As part of our efforts to provide financial advice to clients, we’re regularly reviewing the latest research on investments, planning, and many other topics related to a successful retirement. Much of that research focuses on investors’ ability to stay on course with their asset allocation, through thick and thin. We recently came across a couple of charts we felt did a good job of articulating the benefits of maintaining a long-term perspective when managing a portfolio.
Per Dimensional1,2:
The Bumpy Road to the Market's Long-Term Average
“Since 1926, the US stock market rewarded investors with an average annual return of about 10%. But it’s important to remember that returns in any given year may be sky-high, extremely poor, or somewhere in between.
Annual returns came within two percentage points of the market’s long-term average of 10% in just six of the past 94 years.
Yearly returns have ranged as high as up 54% and as low as down 43%.
Since 1926, annual returns have been positive 69 times and negative 25 times.”
Long-Term Investors, Don't Let a Recession Faze You
“In the past century, there have been 15 recessions in the US. In 11 of those instances, stock returns were positive two years after the recession began.
Investors may be tempted to abandon equities and go to cash when there is heightened risk of an economic downturn.
But research has shown that stock prices incorporate expectations of a recession and generally have fallen in value before a recession even begins.
The average annualized return two years after the onset of these 15 recessions was 7.8%.
A $10,000 investment at the peak of the business cycle would have grown to $11,937, after two years on average.”
1 The Bumpy Road to the Market’s Long-Term Average, Dimensional Fund Advisors, May 2020.
2 Long-Term Investors, Don't Let a Recession Faze You, Dimensional Fund Advisors, May 2020.
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by S.F. Ehrlich Associates, Inc. (“SFEA”), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from SFEA. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. SFEA is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. A copy of SFEA’s current written disclosure Brochure discussing our advisory services and fees is available upon request. If you are a SFEA client, please remember to contact SFEA, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing, evaluating, or revising our previous recommendations and/or services.
