The Importance of Proper Asset Allocation for Long Term Investors
The S&P is now down over 10% YTD, Nasdaq over 15%. Fears of more aggressive rate hikes by the Federal Reserve coupled with geopolitical fears, most notably the Ukraine and Russia, has weighed on all markets. This drop puts the markets in the “Correction” phase. A correction is defined by a market drop of over 10% from its recent peak.
It is important to keep in mind market corrections are entirely common during bull markets and are even healthy. They allow markets to remove speculative run up and allows long term investors to buy are more reasonable levels.
To illustrate the volatile nature of financial markets, looking back at intra-year S&P 500 declines over the 22-year period from 2000–2021, a decline of at least 10% occurred in 12 out of 22 years, or 55% of the time, with an average pullback of 15%. Despite these pullbacks, however, stocks rose in most years, with positive returns in all but five years and an average gain of approximately 7.5%.
Going back in history, declines of 10%-20% have happened 29 times (about once every 2.5 years since 1946), 20%-40% nine times (about once every 8.5 years) and 40% or more three times (every 25 years).
Additionally, it is important to ensure proper asset allocation. Almost every market is down so far this year but the disparity of returns between sectors are striking. The Nasdaq Composite Index is down over 17% while the Value sector is down only 4%. International Stocks have faired much better with most major European and Asian Indexes down about 3%.
In our previous communication we continuously speak of the increased chances of market volatility in both stock and bond markets. Our job is to ensure proper asset class balance ensuring portfolio diversification.
As always if you have any questions feel free to reach out.
Best regards, Bob
This material is intended for general public use and is for educational purposes only. By providing this content, Park Avenue Securities LLC is not undertaking to provide any recommendations or investment advice regarding any specific account type, service, investment strategy or product to any specific individual or situation, or to otherwise act in any fiduciary or other capacity. Please contact a financial professional for guidance and information that is specific to your individual situation. Russell 2000 Index measures the performance of the smallest 2,000 companies in the Russell 3000 Index of the 3,000 largest U.S. companies in terms of market capitalization. The Hang Seng Index is a free float-adjusted market-capitalization-weighted stock-market index in Hong Kong. S&P 500 Index is a market index generally considered representative of the stock market as a whole. The index focuses on the large-cap segment of the U.S. equities market. NASDAQ Composite Index is a market value-weighted index that measures all NASDAQ domestic and non-U.S. based common stocks listed on the NASDAQ stock market. Each company's security affects the index in proportion to its market value. Indices are unmanaged, and one cannot invest directly in an index. Past performance is not a guarantee of future results. All investments contain risk and may lose value. Investing in the bond market is subject to certain risks including market, interest rate, issuer, credit and inflation risk. Equities may decline in value due to both real and perceived general market, economic and industry conditions Opinions expressed are those of the author and not necessarily those of Guardian or PAS. 2021-124911 Exp 8/22
Jeremy has been in the financial advisory business since 2005 after graduating from Fordham University’s School of Business. He joined Tomoro as a managing partner in 2014. During his tenure, Jeremy has consistently excelled as an advisor in both the personal household and business planning arena. As a managing partner, Jeremy also serves as a mentor to all associates and is hands-on in supporting Tomoro’s growth planning. He has completed various curriculums and certifications, such as New York University’s graduate studies in financial planning, is a Certified Exit Planning professional, and Investment Advisor Representative. He and his family reside in Colts Neck, NJ.
Registered Representative and Financial Advisor of Park Avenue Securities and Financial Representative of Guardian, AR insurance license #8401385 CA insurance license #0F94382
The S&P 500 Index is a market index generally considered representative of the stock market as a whole. The Index focuses on the large-cap segment of the U.S. equities market. The Hang Seng Index (HSI) is a market-capitalization-weighted stock market Index in Hong Kong. It is used to record and monitor daily changes of the largest companies of the Hong Kong stock market and is the main indicator of the overall market performance in Hong Kong.
Indices are unmanaged, and one cannot invest directly in an index. Past performance is not a guarantee of future results. All investments contain risk and may lose value. Investing in the bond market is subject to certain risks including market, interest rate, issuer, credit, and inflation risk. Equities may decline in value due to both real and perceived general market, economic, and industry conditions.
Statistics sources from Central Bank Rates and Bloomberg.