Embracing the Unknown: 5 Principles for Your Portfolio
1) Don’t try to time the market
No one has a crystal ball. So while it may feel comfortable to sit in cash, fear, greed or rash moves to “outsmart” the market can lead to emotional decisions or herd-following, rather than logical choices.
2) Know your toolkit: each asset has a role to play
Stocks and bonds have outpaced cash and inflation over time
Cash: Everyone needs it. Over the last 30 years, cash and short-term Treasury bills have barely kept pace with overall inflation and have failed to keep up with the cost of important goods and services such as gasoline, medical care and education.
Stocks: Owning a stock means benefiting from profit growth and dividends paid to reward shareholders. Stocks come with higher volatility, they can also drive capital appreciation.
Bonds: Bonds provide stable income through regular coupon payments.
Alternatives: Alternatives can offer differentiated sources of return, dampening volatility and enhancing returns.
3) Volatility is normal: don’t let it derail your plans
Investors should expect pullbacks—both big ones, such as 2022’s rout (which was the worst for U.S. stocks since the Global Financial Crisis), and small ones, such as we felt during March 2023’s bank stress. But despite these sell-offs, stock markets have rewarded long-term investors. Since 1980, the S&P 500 has suffered an average intra-year pullback of -14%, with 16 of those 44 years seeing even steeper losses. Yet the full-year return was positive in 33 of 44 years (75% of the time). So again, while the “risk” for stocks is volatility, the “reward” has historically come with the return of long-term capital appreciation.
4) Maintain a long-run mindset
Over the short term, assets have a wide range of possible outcomes. Over the long term, the possibilities look much more certain, offering the chance to recoup losses and continue building your wealth.
5) Above all, make a plan with intent
What is the purpose of your wealth? How much cash do you need to feel comfortable? Do you have upcoming purchases or tax payments? Do you need assets that offer income and cash flow?
Considerations such as these can be powerful tools to avoid the pitfalls of emotionally driven, badly timed mistakes, as well as to capitalize on opportunities aligned with your goals.
Rick Barragan is the Managing Director,
Los Angeles Market Manager, for J.P. Morgan Private Bank.
[email protected] | (310) 860-3658
privatebank.jpmorgan.com/los-angeles
Source: J.P. Morgan Private Bank Insights, May 31, 2024. “Embracing the unknown: 5 principles for your portfolio” By Madison Faller, Global Investment Strategist, J.P. Morgan Private Bank.
