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Financial Charts To Help In Market Downturns – Finger Financial Five #147

Jeremy Finger
Jeremy Finger
Table of Contents

“The problem-solving principle that recommends searching for explanations constructed with the smallest possible set of elements.” – Occam’s razor definition, Wikipedia

Since completing the full Ironman 2 years ago, I have gained a few pounds. Few meaning twenty…

Ugh.

How should I go about losing this weight? There is no shortage of quick weight loss schemes as there is no shortage of get-rich-quick schemes.

How do we navigate all the information? Which path do we choose?

The simplest path is usually the best path. The truth lies in foundational concepts. It is no surprise that healthy habits of eating better and exercising yield long-term benefits. 

Likewise, living within your means and investing according to your goals and risk tolerance, increases your chances of financial success. 

Let’s visually review some financial foundational concepts, shall we?

  • Diversifying properly across a variety of asset classes is the most important way for investors to weather market volatility.
  • The balanced portfolio approximates a 60/40 stock/bond allocation. By design, it performs steadily through both good and bad markets.
  • It is difficult if not impossible to predict which asset classes will outperform from year to year.

  • This chart shows total returns of the stock market (bars) and the largest intra-year decline (dots) each year.
  • The average year sees a significant intra-year drop. However, most years still end in positive territory, especially with dividends.
  • Volatility in prices is a normal part of investing. It is important to not forget that investments also generate income.

  • Staying invested is a key principle of long-term financial success.
  • This chart shows the impact of missing the best market days over the past 25 years.
  • Staying invested through ups and downs can make a significant difference in final investment outcomes.

I have seen too many people buy high and sell low to “wait until things settle down” and miss much of the returns. 

  • This chart shows the historical risk and return profiles of various stock/bond portfolios.
  • For instance, while an all-stock portfolio has the highest return, it also has the most volatility.
  • Selecting the best stock/bond allocation depends on personal characteristics and financial goals.

Don’t fall for the trap of, I am going to be aggressive when the stock market goes up and conservative when it is going down…

  • This chart shows the performance of various asset allocations during bear markets.
  • Holding an appropriately diversified portfolio creates a much smoother ride.
  • In fact, these portfolios have done well even against a 100% stock portfolio.

Many people just look at the total return since 2008 and think it is obvious to get invested and stay invested. This may be true. However, LIVING with the swings of the investments daily is HOW you are able to realize the returns. 

The same goes for health. Eating right and exercising each day is how long-term health is created and maintained. 

Good daily choices stack into good monthly choices and yield results over time.

  • While bear markets are unavoidable, bull markets are much longer with larger returns.
  • Since 1956, the average bear market has lasted one year, two months with a decline of 36%.
  • In contrast, the average bull market lasts 5 years 9 months and returns 192%.

This chart shows the number of times that the S&P 500 price index has reached an all-time high within each calendar year overlayed with the S&P 500 price index.

  • Stocks and bonds have both struggled recently due to rising inflation and interest rates.
  • This breaks the historical pattern driven by falling bond yields which supported bond prices.
  • Despite this challenging period, investors should continue to focus on diversification as interest rates stabilize.

  • Life expectancy has grown dramatically over the past 50 years and is expected to continue to improve, albeit at a slower rate.
  • Longevity risk, the risk of outliving retirement savings, is a key consideration when planning for retirement.

  • Over time, the inflation adjusted maximum safe withdrawal rate has ranged from near 4% to over 12% based on a 60/40 stock/bond portfolio.
  • The variance in safe withdrawal rates shows how the average returns over a retirement period impact how individuals can draw down on their portfolios.
  • The 4% rule may act as a good starting point but should only be used as a simple rule of thumb.

Which of these charts did you find the most surprising? Which were the most helpful? 

If you have any questions, please feel free to reach out to us. You can click here to set up a free 15-minute phone appointment or email me at [email protected]

On the lighter side, Iren and I are heading to Las Vegas to see Adel and U2 in concert. U2 is playing at the Sphere and should be an incredible experience. You could say, I am eating my own cooking.

Finger Financial Five – 5 points in 5 minutes or less – is to provide you with a weekly shot of useful financial information.  My intention is to share principles, so that you will have more clarity and peace, that help you make better financial decisions. 

Investment advice offered through Stratos Wealth Advisors, LLC, a registered investment advisor. Stratos Wealth Advisors, LLC and Riverbend Wealth Management are separate entities. This content is developed from sources believed to be providing accurate information and provided by Riverbend Wealth Management. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Stratos Wealth Partners and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

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