Broker Check

What can we learn from Intra-Year declines?

June 15, 2020

To date, 2020 has been a volatile year for sure and thus far, the results have been negative. Through the end of March, the Dow Jones Industrial Average declined by -23.2%. That improved, which is to say that losses had lessened by the end of May, to -10.9%.

Yet here is an important question; from a historical perspective, have we experienced other years when stocks were in such a seemingly downward spiral yet actually ended the year in positive territory? The answer is a resounding YES! 

Consider this chart complied by Dimensional Fund Advisors. Have a look and I will add commentary below: 

This chart measures 20 calendar years, from 2000 through 2019 and is based on the performance of the Russell 3000, which is an index which tracks the performance of the 3000 largest stocks in the US. It comprises 98% of the value of all US publicly-traded companies. By contrast, the S&P 500 tracks the 500 largest publicly-traded companies and accounts for 80% of the US stock market value. 

As you can see, in 15 of the past 20 years, the Russel 3000 ended positive for the year, represented by the light blue bars, while in 5 of those years, performance ended in negative territory as shown by the dark blue bars. Yet even in the positive years, notice that there was a point in time where returns were negative, sometime by a significant amount! This is shown by the red dots.

For example, consider the year 2010. At one point during that calendar year, the Russell 3000 had fallen by -16%, yet by the end of the year it finished with a 17% gain!

Please note I am not suggesting that 2020 will end up positive. I am merely pointing out truths from the past.

Here’s the bottom line for clients of Henry Wealth Management; we allocate assets based on your goals and time frames. A long-term IRA for a young client might be allocated 80-20 (80% in stocks and 20% in bonds). Someone nearing retirement might be 60-40 portfolio, while someone 10 years into retirement might be in a 50-50.

Whatever the allocation is for your unique situation, we believe it is hazardous to your wealth (and maybe your health, too) to shift your allocation based on market events. Changes can and should be made strategically for reasons due to your personal goals and time frames, but NOT tactically because of headlines and fears.

Please let us know if you have questions or would like to schedule a meeting, a call or a Zoom conference. Thank you for your business and trust.

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. Comments concerning the past performance are not intended to be forward looking and should not be viewed as an indication of future results.