The graph above helps illustrate the results of staying on course.
• If you would have pulled out of the markets and went to all cash at the height of the market in September of 2007, you would potentially be behind an our clients using the balanced strategy who stayed in a diversified portfolio (as shown by the blue line).
• If you had pulled out in September 2008 (a more realistic scenario given the bankruptcy of Lehman Brothers at the time), you would potentially be behind both our clients that stayed in a diversified portfolio and those investors who had just invested in the U.S. equity markets (as shown by the gray line).
Even though it appears the economy and the markets are gradually recovering, there still appears to be a lot of negative sentiment in the news about the capital markets and investing in general. Much of the media reports still focus on the damage incurred in 2008 and early 2009 and that drives investors to focus on fear and emotions as opposed to what is actually happening now. And what’s happening now isn’t all that bad. Don’t get me wrong, all is not rosy, but the reality is certainly different than the perception of total damage done to portfolios.
Investors in the hypothetical balanced index portfolios above who remained invested in a diversified portfolio through the course – before the crisis, through the market downturn and up through present – are actually holding larger portfolios than at the peak of the market in 2007. The change was minimal and certainly not the long-term results that one seeks, but it differs dramatically from the dark picture painted by media commentators and advertisers. And this doesn’t include any additional contributions to the portfolios. Investors who continued contributing through this period are even better off than those that didn’t.
This hypothetical example is for illustration only and is not intended to reflect the return of any actual investment. Investments do not typically grow at an even rate of return and may experience negative growth. Strategic asset allocation and diversification do not assure profit or protect against loss in declining markets. Indexes are unmanaged and cannot be invested in directly. Returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment.
