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LABJ Stock Index: September 26

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Can’t Take the Heat

Markets continue to feel the heat as inflation dominates the markets and headlines.
Against such a backdrop, here are three things to consider when markets are volatile for lessons learned.

1. Big down days are tough, but staying invested is crucial. Since 1980, there have been 51 days during which the S&P 500 dropped more than 4% in a single session for only 0.5% of the time. Twenty-one of those days happened during the Global Financial Crisis in 2008-09, and another nine happened during 2020. After each instance, the market never failed to recover and make new highs. If your confidence in staying invested was shook in early September, remember the potential cost of getting out of the market. In the past 20 years alone, the S&P 500 annualized 9.7%, but missing just 10 of the market’s best days, which tend to occur within less than one month of the 10 worst days, would have reduced that annualized return to 5.5%.


2. Don’t miss the forest for the trees. Short-term returns for portfolios aren’t great. Over the last year, a 60/40 portfolio of U.S. stocks and bonds has been down -12.4%. Over the last two years, that portfolio has been up 5.8% (2.9% annualized). However, over the last three, five and 10 years, the annualized returns have been 6.2%, 7.3% and 8.4%, respectively. The present era of high inflation and an aggressive central bank tightening cycle is taking a toll, but the long-term track record is strong. We expect diversified portfolios to continue that trend going forward.

3. Understand the power of a diversified portfolio invested over the long run. While markets have bad days, weeks and even years, history suggests that you are less likely to suffer losses over longer periods—especially in a diversified portfolio. While rolling 12-month stock returns have varied widely since 1950 (from +60% to -41%), a 50/50 blend of stocks and bonds has not suffered a negative annualized return over any five-year rolling period in the past 70 years. Historically, the longer you stay invested, the more certain you can be about the range of outcomes.

History suggests that you are less likely to suffer losses over longer periods.

In turbulent times, it is key to remember your core investing principles and consider capitalizing on windows of opportunity that the market presents.

Rick Barragan is the Managing Director, Los Angeles Market Manager, for J.P. Morgan Private Bank.
[email protected] | (310) 860-3658

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