Market Volatility is the Cost of Earning Long-Term Equity Returns

The market was dull during 2017. The trading range of the S&P 500 barely deviated over 1% on any given day, yet it returned over 21% for the year, a nice calm rising market without any sizable pullbacks. The calm of the equity markets in 2017 has changed investors’ expectations of what normal market fluctuations are and how often 10% corrections occur. According to JP Morgan’s research, intra-year declines have averaged 13.8% between 1980 and 2017 even though the market has had a positive annual return in 29 out of 38 years. The volatility that markets have experienced in the first part of 2018 is the norm rather than the exception.

The same research shows that the average annual return on the S&P 500 from 1980 to 2017 has been 8.8%, a return that has your money doubling approximately every 8 years. Your portfolio is the funding medium to reach your financial goals, and the volatility associated with investing is the cost of producing satisfactory long-term returns. Riding out the temporary declines in the value of your portfolio leads to greater wealth in the long-term.

Discover more from Bledsoe Asset Management

Subscribe now to keep reading and get access to the full archive.

Continue reading