For an investor pursuing long-term goals, large losses have a much greater impact than large gains. This can be true both mathematically and emotionally. In managing your portfolio, one of our top priorities is to regulate downside risk so that when the market experiences significant losses, your portfolio does not. That is not to say that we invest conservatively, rather that we do our best to make wise investment decisions in the face of a market downturn.
Over the last 110 years, the Dow Jones Industrial Average offered investors the potential for long-term growth. More specifically, if you had money invested in the market for all of the last 110 years, you would have significant gains. Like most investors, your investing time horizon is certainly significantly shorter – more likely 20-40 years. Consider the chart below, which details the bull and bear markets of the Dow Jones Industrial Average since its inception in 1896.
|Dates||Months||Years||Annualized Returns||Cumulative Returns|
|Dec 1896-Jan 1906||110||9||10.56%||148.92%|
|Feb 1906-Jun 1924||218||18||-0.24%||-4.92%|
|Jul 1924-Aug 1929||63||5||30.44%||294.66%|
|Sept 1929-Nov 1954||304||25||0.07%||1.69%|
|Dec 1954-Jan 1966||135||11||8.72%||154.29%|
|Feb 1966-Oct 1982||202||17||0.05%||0.83%|
|Nov 1982-Jan 2000||206||17||15.09%||1,003.19%|
|Feb 2000-Dec 2013 ??||168||14||3.05%||42.7%|
The red boxes indicate time frames with low or negative annualized and cumulative returns. The white boxes indicate time frames with high long-term returns. The orange box indicates the current market cycle that is still unfolding. Notice that each period spans an average of a 14 year window which is a sizable portion of many investors’ time horizon. Although there were opportunities to make money in these time frames, most “buy and hold” investors likely did not make significant overall gains.
Investing involves risk including the potential of loss of principal. No strategy can assure success or protect against loss. The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors. Indexes are un-managed and investors are not able to invest directly into any index. Past performance is no guarantee of future results.