As we've wrapped up a tumultuous 2018, it's worth remembering that despite the roughly 10 - 20% declines (most of this in the last three months) different types of equities (small, large, global) have experienced, their three-year cumulative returns are an impressive +20 to +40%. This compared to 6-month CD rates that in 2015 averaged 0.35% and are now just 0.68%. Bonds too haven't offered much of a return with 10-year US treasuries yielding 2.24% then and 2.72% now.
It's understandable that an investor's most recent experience is the one they remember the most. “We’ve lost 20%!” Most investors would accept the recent 20% loss if it came after the last three years racking up 10% average returns per year (even after the recent decline).
December 2018 was the worst month since February 2008, which was the month before the market started a historic ten-year run where equity investors generally tripled their portfolio values. Today, company profits are high, they have less debt than before and generally speaking most every sector is now valued at less than their long-term average. This could mean they are a pretty good value to buy at their currently depressed prices.
Every VF client's portfolio is built to endure the inevitable equity market declines, some of which can be pretty substantial (40+%). For those already retired, this means we build in 5 - 8 years of more stable income assets to allow the equity side of their portfolios to recover. Anyone that's 10+ years away from retiring should rejoice in the opportunity to buy less expensive investments now while they're accumulating money in their retirement accounts.
Equity market declines themselves are not to be feared, they are inevitable. However, how people respond to them is often what does the most damage as they pursue their longer-term goals. If you have any questions or concerns about your investments or the ability to achieve your financial goals, please contact us.
*Past performance does not guarantee future results*