We recognize how difficult it is to navigate this challenging market environment with the recent market volatility, the Federal Reserve’s interest rate action, high inflation, supply chain issues, COVID-19, gas prices and the war in Ukraine. Although this can be unsettling, we would like to offer you some perspective.
As investors, our first line of defense against market volatility is seeking diversification. Our experience continues to teach us that investors are generally rewarded for not making reactionary decisions during inevitable periodic downturns and volatility. Our goal is to develop well-conceived, diversified, and properly monitored portfolios for each of our clients which perform in up markets and weather the down markets. We take into account each client’s objectives and risk tolerance, though we may make adjustments to allocations within the originally agreed-upon parameters. In our view, the best course of action is to stay the course that we have set together. Trust the process.
April was a tough month with the S&P 500 dropping 8.8% and even more difficult in the growth and technology segments of the market, with the Nasdaq dropping 13.3%1. As of the end of April, the S&P 500 was down 14.2% from its highs, and year-to-date down 12.92%2. Going back the last 42 years, the average annual intra-year decline was 14%3. This means we are in the average range, even though it doesn’t feel that way right now. Even with yesterday's 4% drop in the S&P 500, this is still within the range of other intra-year declines.
We wanted to share some illustrations that may help put this market activity in context; we first shared them with you in February at the inception of the Russian invasion of Ukraine. We think they are just as applicable now.
Annual Returns and Intra-Year Declines
The chart below shows that many years in stock market history have seen sharp intra-year declines and still posted positive returns, with notable exceptions including the global financial crisis, the bursting of the tech bubble and the crash of 1987.
Bull & Bear Markets 03-31-22
The chart below helps put into perspective the past 79 years of stock market behavior through various market cycles and external shocks, which have been historically relatively short-lived.
S&P Index: Positive & Negative Years
The chart below also helps reiterate that over the past 96 years the majority of returns are positive.
Asset Class Returns
The chart below illustrates the benefits of diversification. We believe in a diversified investment portfolio approach to drive returns and mitigate downside risk.
We understand it is hard not to react given the volatility of the markets and with all that is going on in the world, but we encourage you to stay the course. We will continue to monitor the markets and your investments. Please do not hesitate to contact your GW & Wade counselor or contact us here with any questions or concerns about your portfolio as this article is not a substitute for individualized advice. Please extend an open invitation to family members, friends and colleagues who might appreciate the perspective that we offer.
1 Wall Street Journal 5/1/2022 Cover Page 2 Morningstar S&P 500 TR YTD Return as of 05/02/2022 3JP Morgan Asset Management S&P intra year declines vs. calendar year returns, Data as of 4/25/2022
Charts - Bull & Bear Markets 03-31-22 and S&P Index: Positive & Negative Years 12-31-21 Source: First Trust Investment advisory services offered through GW & Wade, LLC.
The information provided above is the opinion of the author, general in nature and is not intended to represent specific investment or professional advice. No client or prospective client should assume that the above information serves as the receipt of, or a substitute for, personalized individual advice from GW & Wade, LLC, which can only be provided through a formal advisory relationship.
The figures shown above represent historical results. Past market performance is not a guarantee of future results. The investment products mentioned in the above article may not be suitable for all investors. All investments carry the risk of loss, including the risk of loss of principal invested. Some alternative investments strategies are private investments, which have limited liquidity. Diversification and asset allocation do not ensure a profit or guarantee against loss.
The charts are for illustrative purposes and are not indicative of any actual investment. Investments cannot be made directly in an index. The index returns represented in the article above are provided gross of fees. Advisory fees, compounded over a period of years, will reduce the total value of a client’s portfolio. For most clients, GW & Wade assesses advisory fees on a quarterly basis in arrears and deducts the fees directly from a client’s account. To the extent that such fees are deducted on a quarterly basis, the compounding effect will increase the impact of such fees by an amount related to the account’s performance. For example, accounts with a 1% annualized fee that is deducted quarterly and a 10% gross annual return, generally will have a net annual return of 9%. If those same accounts experience 10% gross annual return over five consecutive years, the compound growth would result in a cumulative five-year return of 61.05% but after accounting for the 1% annual fee, the compounded overall return would be 53.86%. GW & Wade’s advisory fees are described more fully in our Form ADV Part 2A, available here.
Clients of the firm who have specific questions should contact their GW & Wade Counselor. All other inquiries, including a potential advisory relationship with GW & Wade, should be directed to:
Laurie Wexler Gerber, Director of Marketing GW & Wade, LLC 781-239-1188 firstname.lastname@example.org