It's a wild, wild ride out there

S.F. Ehrlich Associates |

August 15, 2019

During periods of volatility, or in anticipation of volatility, or just about any day of the week, it’s common to speak to a client or two about market volatility. The questions are often similar: “How can I get market returns with less risk?” Or, “Can’t we sell everything and go back in when things settle down?”

If the following questions aren’t asked, we’re sure clients wonder why they own fixed income (i.e., bond funds) when the stock market goes up; why they own equities when the stock market goes down; or why they own foreign equities when the S&P 500 seems to always go up.

It’s probably not sufficient to answer these questions in the simplest fashion (You can’t; You can’t; Because you have to; Because you have to; Because you have to). To help answer these questions, the following chart from JP Morgan1 graphically depicts the performance of stock, bond, and blended portfolios over a variety of time frames (i.e., one year to rolling 20-year periods).

As the graph depicts, investors can’t get market returns unless they invest ALL of their assets into the market. And the market, as measured by the S&P 500, for example, is a potentially risky place to invest ALL of your money, unless you have a very long investment horizon. 

In terms of getting out of the market when one anticipates a market downturn, we don’t have the ability to predict market peaks and valleys, so we ride through them and keep rebalancing. Trying to time the market (which relates to the three questions above that may often be thought but not asked) is typically a fool’s errand. Miss too many up days, and those gains are lost forever. And one of those great days may occur during a period when you’re out of the market because you thought it was going to fall.

In the end, the answer to how to reduce volatility and achieve returns that will make your retirement plan successful isn’t timing the market, but time in the market. Note how equity market volatility (as measured by annual average returns) drops from a range of -39% to +47% for any single year, to +6% to +17% over rolling 20-year periods.

As life expectancy continues to increase, the importance of a long game for investments takes on even more significance. That doesn’t mean you won’t have agita along the way, but odds are the ride will get less bumpy the further down the road you get.



1 Kelly, David, et al. “J.P. Morgan Guide to the Markets, June 30, 2019 Ed.”
Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by S.F. Ehrlich Associates, Inc. (“SFEA”), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from SFEA.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  SFEA is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice.  A copy of SFEA’s current written disclosure Brochure discussing our advisory services and fees is available upon request. If you are a SFEA client, please remember to contact SFEA, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing, evaluating, or revising our previous recommendations and/or services.