Short-term uncertainties are a certainty of long-term investing.

 

If we look back to 1980 there were 36 of 45 years where the S&P500 Index had a positive year. Even with the average intra-year drop being nearly 13% one would have compounded their investment at an annualized 12.60%. That’s an increase of over 21 times by staying invested throughout the inevitable periods of volatility.

 

In January we wrote about the risks we see in investing:

 

“Perhaps the most important risk is investor behavior. One of the costs that investors bear is trying to time investing. When prices go up, they get excited and want to invest. When prices go down, they get fearful and want to get out. The return that those investors get is the product of two variables. One is the underlying return of the investments. The second one is the timing of when they get into those investments, or when they're shaken out of them.

 

A second risk to consider is the inevitability of corrections and the inevitability of shocks in the system. The market, on average, has a 20 percent dip every three years. It's just an unpleasant but inevitable part of investing. Mentally prepare for those corrections.

 

A third risk is not being able to disregard short-term forecasts. Yes. You can't avoid hearing strategists proclaiming the market is going to go down without hearing other strategists proclaiming it's a great time to get in.

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Recoveries can come swiftly. Volatility is creating opportunity for your managers. Risk is missing the opportunity to participate.

 

We are always available for a conversation if you have any concerns.