Key Takeaways
History shows that corrections typically occur every couple months, which can be unnerving for investors. With this in mind, we think it is prudent to periodically review our core investment principles for any potential market turbulence ahead.
• Stock market corrections are a normal occurrence. Despite average intra year drops of 14%, the S&P 500 produced positive annual returns in 33 of the last 43 years with average total returns over that period of 10%.
• Historically, owning stocks have been important for maintaining purchasing power. Stocks have outperformed every major asset class over long periods of time.
• Market timing can be very difficult and a major impediment to portfolio returns could be short term emotional decisions related to market volatility. Investor performance can be negatively impacted by poor market timing and a lack of portfolio diversification. Investors, in general, are usually best served by focusing on long term returns and maintaining a diversified portfolio, which includes an appropriate amount of exposure to risky assets.
• Diversification matters. Asset class returns vary from year to year and diversification can greatly reduce portfolio volatility. A balanced portfolio reduces volatility while helping maintain long run returns.
• Investment time horizon is also important for investment success. While yearly returns can be volatile, holding a diversified portfolio for longer time periods usually results in positive returns.
Stock Market Corrections are a Normal Occurrence
Despite average intra year drops of 14%, the S&P 500 produced positive annual returns in 33 of the last 43 years with average total returns over that period of 10%.
• Market corrections are not a financial loss…unless you sell.
Too Little Equity Exposure Could be a Mistake
Stock exposure is important for portfolio growth and maintaining long-term purchasing power.
• Compounding returns can be powerful over time, despite bouts of volatility.
• Stocks have outperformed every major asset class during long periods of time.
• While we face economic challenges today, stocks outperformed during the last 90 years, which included numerous economic and market challenges.
Market Timing and Lack of Diversification
Studies have shown the average investor can underperform because of poor market timing and a lack of portfolio diversification.
• Investors are usually best served by focusing on long term returns and maintaining a diversified portfolio, including considering exposure to risky assets. A major threat to portfolio returns is short term emotional decisions related to market volatility.
Diversification Reduces Yearly Volatility
Asset class returns vary from year to year and diversification can greatly reduce portfolio volatility.
• A balanced portfolio reduces volatility while maintaining long run returns.
Time and Diversification are Critical
Range of Stock, Bond, and Blended Returns
- Annual total returns, 1950 2023
Definitions and Disclaimer
INDEX DEFINITIONS
The S&P 500 Index is widely regarded as the best single gauge of the U.S. equities market. The index includes a representative sample of 500 leading companies in leading industries of the U.S. economy. The S&P 500 Index focuses on the large cap segment of the market; however, since it includes a significant portion of the total value of the market, it also represents the market.
The Russell 2000 Index® measures the performance of the 2,000 smallest companies in the Russell 3000 Index.
The MSCI ACWI (All Country World is a free float adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets.
The MSCI EAFE Index (Europe, Australasia, Far East) is a free float adjusted market capitalization index that is designed to measure the equity mark et performance of developed markets, excluding the U.S. and Canada.
The MSCI Emerging Markets Index is a free float adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets.
The Barclays Global High Yield Index is a multicurrency flagship measure of the global high yield debt market. The index represents the union of the US High Yield, the Pan European High Yield, and Emerging Markets (EM) Hard Currency High Yield Indices. The high yield and emerging markets sub-components are mutually exclusive. Until January 1, 2011, the index also included CMBS high yield securities.
The Bloomberg US Aggregate Bond Index is an unmanaged, broad-based index consisting of Treasury securities, government agency bonds, mortgage-backed bonds, publicly issued U.S. corporate and specified foreign debentures and secured notes that are rated investment grade (Baa3/BBB or higher) by at least two ratings agencies, have at least one year to final maturity, and have at least $250 million par amount outstanding.
The NAREIT EQUITY REIT Index is designed to provide the most comprehensive assessment of overall industry performance and includes all tax qualified real estate investment trusts (REITs) that are listed on the NYSE, the American Stock Exchange or the NASDAQ National Market List.
The Bloomberg Commodity Index and related sub-indices are composed of futures contracts on physical commodities and represents twenty-two separate commodities traded on U.S. exchanges, with the exception of aluminum, nickel, and zinc.
The Bloomberg Barclays Long Term Corporate Bond Index is designed to measure the performance of U.S. corporate bonds that have a maturity of greater than or equal to 10 years.
ISG Balanced Portfolio assumes the following weights: 51% MSCI ACWI, 3% Bloomberg Commodity Index, 3% NAREIT Equity REIT Index, 3% Alternative Investments, 40% Barclays Capital Aggregate
DISCLAIMER
Past performance is no guarantee of future performance and future returns are not guaranteed. There are risks associated with investing in stocks such as a loss of original capital or a decrease in the value of your investment. This report is provided for informational purposes only and shall in n o e vent be construed as an offer to sell or a solicitation of an offer to buy any securities. The information described herein is taken from sources which we believe to be re liable, but the accuracy and completeness of such information is not guaranteed by us. The opinions expressed herein may be given only such weight as opinions warrant. Th is Firm, its officers, directors, employees, or members of their families may have positions in the securities mentioned and may make purchases or sales of such securities from time to time in the open market or otherwise and may sell to or buy from customers such securities on a principal basis.
