March 28, 2017 | by James Behr Jr & Christopher Paleologus
Too often investors attempt to time the market and follow media headlines proclaiming the stock market is either headed for new highs or on the verge of a crash. This has been evident over the past few weeks with headlines reading “Dow Volatile After Losing Streak,” “The Trump Stock Market Rally is Under Siege,” and “Dow Posts 8-day Slide, Longest Since 2011” as some examples. These headlines, especially negative ones, typically attract the most attention from investors and can lead to rash decision making. Alternatively, positive headlines about stock market performance such as “Wall St. Sees Even More Gains Ahead” can lead to inflated expectations of future stock performance.
We believe the best plan for investors is having a long-term approach to being invested in the market. A simple plan to get started is to begin saving money and contributing to investment accounts. The effect of compound interest on these investments and time are the biggest advantages that investors have. For most people, the initial fear of beginning to invest is the hardest hurdle to overcome. Most people don’t realize that even by saving just cash, they’re likely losing money due to inflation.
Having a long-term return goal on investments can help ease any noise in the markets. A recent Fidelity survey reported that only 8% of respondents knew that the U.S. stock market yielded positive returns 30 out of the past 35 years. It can be difficult to ride out the volatility and fear that seems omnipresent in U.S. equities but it should be noted that over the long term, U.S. equities have incredible positive returns. The chart below from JP Morgan shows annual returns over various time periods for a portfolio of U.S. Equities, bonds, and a 50/50 asset allocation. Depending on how you observe the chart, the 1 year return of stocks from 1950-2016 can be scary or reaffirm your long-term investing horizon. We would like to draw attention to the right side of the chart that shows the 20-year rolling returns though.
(click on image to enlarge)
The chart shows that over any 20-year period from 1950-2016, the worst annual return would have been 7%. It is important to remember that this is 7% annually. If you were to invest $10,000 during this worst period, after 20 years your initial $10,000 would now be worth $38,696.84. Now imagine over that 20 year period you had been contributing an additional $5,000 to an account in addition to the initial $10,000. Your total contributions would be $110,000 but your account value would be $243,674.31. This would have been during the worst 20-year period over the last 65 years.
Looking further at the chart, 5-year and 10-year returns in U.S. equities are also favorable for investors. The worst periods would only have resulted in small losses for investors and further illustrate the point that investors should be more focused on a long-term plan for their investments. At Blue Bell Private Wealth Management, we strive to educate our clients to have this long-term outlook and helping them to achieve their financial goals through investments that offer downside protection with returns in line with market performance. If you are interested in learning more about our company, our investment process, or how we could help you achieve your long-term financial goals please contact our office at (610) 825-3540 or email us at firstname.lastname@example.org.