We are cognizant of the long term damage to portfolios that can be caused by (often emotional) market driven downswings. This chart shows the return necessary to break even after incurring a market loss.
For example, on the chart, in the event of a 30% loss, your portfolio must gain 43% to get back to even! A loss of 40% requires a gain of 67% to get back to even! Broad diversification and maintaining a disciplined global asset allocation plan can mitigate losses, thus maintaining a more stable asset base on which to build future growth.
-is centered on the concept that global securities and capital markets are ‘efficient’. This means that, over time, security prices (stocks, bonds, ETF’s, etc.) reflect reasonable and fair values based on fundamentals.
Mispricing of securities can occur for short periods of time (or, sometimes extended periods) given the emotional swings of the market. However, broadly accepted research shows that market timing or rapid trading and turnover tend to harm portfolio values and greatly add to costs.
Trying to successfully time the market – jumping in and out of stocks based on projecting short-term market swings is tricky as indicated in this chart.
Example:
A market timing investor starts with a 100k portfolio in 1989.
In an effort to time market up’s and down’s, the portfolio happens to be un-invested in the stock market’s 5 best single up days during the entire 9,920-day history.
At the end of 2016, the portfolio would total $763,600 instead of $1,151,000 ($387,400, almost 34% less – probably because of the investor guessing wrong using some market timing theory).
If just 25 best days are missed, the portfolio would total $289,400 instead of $1,151,000 (a massive $861,600 opportunity cost, almost 75% less).
Not overpaying, emphasizing quality and broad diversification are additional keys in building wealth. Broadly diversified investments, including low cost institutional mutual funds, exchange traded funds (ETF’s), REIT’s and actively managed portfolios holding individual stocks and bonds are selected to customize your portfolio.
To enhance the investment resources available to you, Counsel Trust has formed a strategic partnership with Northern Trust Investments, Inc. (NTI), providing asset allocation, securities and economic research. Our affiliation with Northern Trust assists us in providing comprehensive economic analysis and asset allocation guidance for our wealth management clients.
