January 22, 2019


The reward of tuning out 11 years of noise

This recent market downturn has many investors drawing parallels to how they felt during the infamous 2008 financial crisis. The last 11 years have been a roller-coaster ride for investors. Right after seeing market highs in late 2007, investors experienced a nearly 50% market decline of the S&P 500 in 2008. In the following 9 years, the S&P 500 delivered double-digit positive returns in all but two years, and then unfortunately had that barbelled with today’s most recent threat on a bear market with the S&P 500 going down 19.77% since late August. Well, to summarize, it has been a volatile ride!

So how does this 11-year ride stack up in the history of stock returns? There have been 83 trailing 11-year periods since 1926 for the S&P 500. 2008-2018 ranks in the bottom 25% for these periods when measuring performance. To make things worse, the S&P 500 was the shining star over this time period beating out the returns of U.S Small-cap, International, and Emerging Market Stocks.

Knowing this, you would assume a diversified investor (60% stocks and 40% bonds) probably didn’t fare too well over these past 11 years. They didn’t get the 6-7% return we would expect for the long run, but still managed a return of 5.14%.

When put into perspective, a 5.14% return doesn’t sound too bad given the period we just went through. Contrary, a saver who invested in 1-year CD only averaged 1.05% during the same period, losing over 1% per year to inflation. $500,000 invested in January of 2008 grew to $867,796 with the 60/40 portfolio vs $560,395 if saved in 1-year CD.

There are many takeaways here, but most important is the reminder to stay the course. Being invested in the market certainly will come with volatility at times (see at left), but it is one of the best ways to get returns that keep up with inflation and help us meet our long-term goals. We don’t expect future equity returns to be in the bottom 25% going forward. Things will turn around like they always do. As investors, the only thing we can do is make sure we are participating when that time comes.

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