Politics and Your Portfolios in a Brand New Year

"The factor that I think could hurt long-term returns the most – and thereby pose the greatest risk – is an investor’s attempt to time the bull market’s peak." - Mitch Zacks

Take a look at this chart. It nicely summarizes a number of crises in our lifetimes. I mean, they were big deals. This chart covers all three impeachments, and they are hardly blips. (1)

Rethinking risk blog SP 500 CHART final

What we're afraid of, in our office, is not what you're afraid of. We are afraid you'll want to take action on the news. Histroically, as volatility over the short term goes up, our chances of making money over the very long term go up. And what happens in the short-term is usually scary and we usually feel like we cannot make money. And we're right -for a little while- and that is the sucker punch! 

Here is a nice summary, from Zacks, of our problem: (2)

  • • 1-year rolling period: volatility 19%, possibility of negative return 28%
  • • 3-year rolling period: volatility 10%, possibility of negative return 16%
  • • 5-year rolling period: volatility 8%, possibility of negative return 11%
  • • 10-year rolling period: volatility 5%, possibility of negative return 3%

When stocks bounce around and you may want to sell. If we sell, we have to them help you get back into the market - but when? We've put this plan together for a decade or more and look at our chances of making money, something like 97%. (2) What's more, we're more likely to make more money in those times when it feels most scary.

Mark your calendars. On February 5th, we're going to bring in a guest speaker to talk with any clients who are interested about what this Presidential cycle means for your portfolios. I'll give you a hint - it's in the chart above - but you may want to attend to hear it for yourselves.

Sources:

(1) https://www.blackrockblog.com/2019/11/25/rethinking-risk-in-equities/

(2) https://www.zacksim.com/biggest-risk-long-term-investment-returns/?div=mitch-on-the-markets

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