Experiencing a major pullback in stocks is never a comfortable feeling. In times like these, we believe it can be helpful to set aside the daily headlines and keep perspective of how stocks have historically performed over the long term. After all, the majority of market participants are long-term investors, not day traders as the financial media would have its viewers believe.
Investors whose portfolios contain high-quality fixed income and equity positions have almost certainly seen their fixed income allocations benefit greatly in recent months, as their equity positions have suffered. Given the most recent market, equity allocations are likely below their portfolio targets and fixed income allocations are likely above their portfolio targets. We believe now may be an opportune moment for suitable investors to adjust those portfolio allocations back to their long-term targets and potentially capture benefits from rebalancing.
“The recent market volatility presents an opportunity for investors to assess their current portfolios in the context of their long-term plans,” said LPL Financial Senior Market Strategist Ryan Detrick. “For many investors with a long-term investment horizon, this means considering adding equities to true up allocations to their targets, and we believe investors with long-term horizons can do so with confidence.”
Short-term volatility comes in waves, but stocks have an extremely attractive track record over the long term. As shown in the LPL Chart of the Day, over all rolling periods since 1928, stocks have risen 76% of the time across a three-year horizon, and that percentage rises to 96% when zooming out over a 20-year horizon. When starting from levels as depressed as the current market prices are, the risk/reward tradeoff is even more appealing.
All indexes are unmanaged and cannot be invested into directly.
While past performance is no guarantee of future results, we do view history as a helpful guide for future possibilities. We take comfort in the fact that the data sets are as positive as they are despite weathering such volatile periods as the Great Depression and the Financial Crisis.
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