Stay the Course, Stay the Course, Stay the Course
Investors are being tested by the stock markets: Can they stay the course? Should they? Take a look at a few charts of market performance over the long term to see the case for sticking with a diversified portfolio.
With equity indices crossing into bear market territory, it's easy to get anxious seeing your account balance rise and fall several percentage points each day. Although the situation we face today is unique (coronavirus containment, oil price war, etc.), this type of market environment isn't. For well-prepared, long-term investors, now is a time to stay the course while evaluating potential opportunities as assets become oversold. Below we offer a series of charts detailing historical parallels and supporting the case for diversified portfolios.
The table below details the last several bear (or close to it) market drawdowns dating back to 1987. While you often hear about the magnitude of the drawdown (red numbers), what's less discussed is the performance of the next 12 months, or the green numbers. Many of the best all-time trading days come within a month of the worst trading days, and sitting out from these best days can have a material impact on long-term performance.
S&P 500 Biggest Declines and Following 12-Month Performance
To view chart at full size, click here

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
It's tempting to try to time the market, but that requires two important timing decisions — when to sell and when to buy. A few small miscalculations of either move can have a significant impact on results. As seen below, missing out on just the market's top 10 performing days over the past 20 years would cut the gains on a $100,000 investment by about half.
Impact on a $100,000 Portfolio of Missing the Market’s Best Day
" target="_blank">To view chart at full size, click here
Looking back over the past decade, or century for that matter, there have been plenty of excuses to sell stocks. Just over the past bull market, we've had the Greek Debt Crisis, the introduction of negative interest rates, an Ebola outbreak, Brexit, and a global trade war, just to name a few. Amid all of this, stock markets have still managed to produce impressive gains.
" target="_blank">To view chart at full size, click here
Many will offer opinions, but our view is that it's nearly impossible to predict how this crisis will unfold. What's perhaps more likely, is that volatility will remain elevated in the coming weeks and potentially months. Given this framework, our belief in diversified portfolios remain.
The Case for Diversification: S&P 500 Index vs. Diversified 60/40 Stock/Bond Portfolio
" target="_blank">To view chart at full size, click here
Conclusion: Living through these periods of market uncertainty is rarely a fun exercise, but these challenges will occur occasionally. It's important to remain calm and stay focused on the long term.
For more information or to discuss further, please email me
or call me at 203.409.1270.
Disclaimer: Summit Financial, LLC. is a SEC Registered Investment Adviser ("Summit"), headquartered at 4 Campus Drive, Parsippany, NJ 07054, Tel. 973-285-3600. It is provided for your information and guidance and is not intended as specific advice and does not constitute an offer to sell securities. Summit is an investment adviser and offers asset management and financial planning services. Indices are unmanaged and cannot be invested into directly. Data in this report is obtained from sources which we, and our suppliers, believe to be reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. The Standard & Poor's 500 Index (S&P 500) is an unmanaged group of securities considered to be representative of the stock market; the MSCI EAFE Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization index designed to measure the equity market performance of developed markets, excluding the U.S. and Canada; the Bloomberg Barclays U.S. Aggregate Bond Index is a market capitalization-weighted index comprising Treasury securities, Government agency bonds, mortgage backed bonds, corporate bonds, and some foreign bonds traded in the U.S.; The Russell 2000 Index is a market-cap weighted index comprised of the smallest 2,000 companies within the Russell 3000 Index. Consult your financial professional before making any investment decision. Past performance is no guarantee of future results. Diversification/asset allocation does not ensure a profit or guarantee against a loss.
Disclaimer
Investment advisory and financial planning services are offered through Summit Financial LLC, an SEC Registered Investment Adviser, 4 Campus Drive, Parsippany, NJ 07054. Tel. 973-285-3600 Fax. 973-285-3666. This material is for your information and guidance and is not intended as legal or tax advice. Clients should make all decisions regarding the tax and legal implications of their investments and plans after consulting with their independent tax or legal advisers. Individual investor portfolios must be constructed based on the individual’s financial resources, investment goals, risk tolerance, investment time horizon, tax situation and other relevant factors. Past performance is not a guarantee of future results. The views and opinions expressed in this article are solely those of the author and should not be attributed to Summit Financial LLC. Links to third-party websites are provided for your convenience and informational purposes only. Summit is not responsible for the information contained on third-party websites. The Summit financial planning design team admitted attorneys and/or CPAs, who act exclusively in a non-representative capacity with respect to Summit’s clients. Neither they nor Summit provide tax or legal advice to clients. Any tax statements contained herein were not intended or written to be used, and cannot be used, for the purpose of avoiding U.S. federal, state or local taxes.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
Michael Aloi is a CERTIFIED FINANCIAL PLANNER™ Practitioner and Accredited Wealth Management Advisor℠ with Summit Financial, LLC. With 21 years of experience, Michael specializes in working with executives, professionals and retirees. Since he joined Summit Financial, LLC, Michael has built a process that emphasizes the integration of various facets of financial planning. Supported by a team of in-house estate and income tax specialists, Michael offers his clients coordinated solutions to scattered problems.
-
New Colorado Tax Credit: What’s the Scoop?
State Tax Everything you need to know about the Colorado family affordability tax credit in 2025.
By Kate Schubel Published
-
Reddit Stock Falls After User Number Disappoints
Reddit stock is down Thursday after the social media platform fell short of expectations on a key metric for its fourth quarter. Here's what you need to know.
By Joey Solitro Published
-
Heirs Inheriting Crypto? Don't Make It a Headache for Them
If you have cryptocurrency in your estate, you'll need meticulous plans and clear instructions to ensure beneficiaries don't lose out after you're gone.
By Patrick M. Simasko, J.D. Published
-
DIY Retirement Planning: A Smart Move or a Risky Endeavor?
You can cut the cost of retirement planning by doing it yourself. But for something this important, it might be wiser to call in the professionals.
By Jennifer Lahaie, RICP®, CTS™, CAS® Published
-
Galentine's Day: A Time to Promote Financial Literacy Among Friends
Here are three things women can do to help their friends gain financial knowledge and confidence.
By Stacy Francis, CFP®, CDFA®, CES™ Published
-
Stock Market Today: Markets Turn Lower on Nasty Inflation Surprise
Equities sold off after a hot reading on consumer price inflation pushed back rate cuts to autumn or year-end.
By Dan Burrows Published
-
These Two Issues Are Critical to Efficient Retirement Planning
You're saving hard for retirement, but if you're not thinking ahead about taxes and the cost of health care, your savings — and your legacy — could be at risk.
By Cliff Ambrose, FRC℠, CAS® Published
-
How to Use Good Debt (While Identifying and Avoiding Bad Debt)
Not all debt is bad, but knowing the difference between good debt and bad debt and how to use them can help you get ahead financially and stay ahead.
By Mike Decker, NSSA® Published
-
Stock Market Today: Markets Reflect Elevated Uncertainty
Investors and traders as well as CEOs and central bankers continue to adjust to a new administration in Washington, D.C.
By David Dittman Published
-
Four Potential Tax Changes to Keep Your Eye On
Many taxpayers may be surprised by a larger tax bill if the TCJA isn't extended. Check out these proactive strategies to help mitigate some of the impacts.
By Adam Frank Published