With stock markets at or near all-time highs, bond yields at or near all-time lows, and a seemingly endless stream of bad news coming from TVs, radios and social media, why would anyone want to be invested in “traditional” stocks and bonds right now? In some form, this is one of the main questions we are discussing with clients these days.

While each client has a customized strategy and portfolio, the short answer as to why it makes sense to stay invested:  It works!  The key, however, is time frame.  With a long time horizon (and a disciplined, tax-aware, rebalancing strategy), we take advantage of any swings in the stock market versus fearing such swings.  At SWM, we refer to this long-term thinking as Durability.

The chart below compares historical returns over a long (25-year) time period and a short (1-year) time period.  We know that the past provides no guarantee for the future, but we also know that investing based on our (or anyone’s) short term prediction of market movements is usually detrimental to long term returns.  So make sure any short term cash flow needs are covered (cash/money market/short-term bonds), and stay disciplined with your long-term investment strategy.

Will things be different this time? If you have a long time frame, we think not.

“The four most dangerous words in investing are: this time it’s different.” – Sir John Templeton

ABOUT OUR EXPERT:  Michael A. Horlick, Partner

Michael has 30 years of experience working directly with families to assist with their wealth management, investment management and tax planning.  Prior to joining SWM in 2012 he provided wealth management advice to clients through his own firm, Four Corners Wealth Management.  Michael also worked for Price Waterhouse, Bank of America/US Trust and JPMorgan.

Michael received his Bachelor’s degree in Business Administration and Master’s degree in Accounting from the University of North Carolina at Chapel Hill.  He is a CERTIFIED FINANCIAL PLANNER™ (CFP) Professional, a Charted Financial Analyst® (CFA®) charterholder, holds the Personal Financial Specialist (PFS™) credential with the American Institute of Certified Public Accountants, and is a Certified Public Accountant (CPA) licensed in Texas (non-practicing).

Michael currently serves on the Boards of After-School All-Stars, and St. Philip & St. Augustine Catholic Academy in Dallas.  He lives in Carrollton with his wife Kris and youngest child, Daniel.

Data Source: Pacific Life Insurance Company via Morningstar Direct for S&P 500 and Barclay’s data December 2019. The historical average annual rates of return were determined using the average return of individual one-year holding periods, each created daily from 1/1/1989 to 12/31/1995 and held and reinvested in each respective asset mix for one or 25 years (respectively) with the last holding period ending on 12/31/2019. The results in 7,559 data points in the first chart and 1,517 data points in the second chart. The data points are averaged over the 25-year period of historical index performance for the results shown. The S&P 500 and Bloomberg Barclays Bond U.S. Aggregate indexes are used for hypothetical reasons only. These indexes are unmanaged and an investor cannot directly invest in them. The diversified portfolios are weighted between the S&P 500 and Bloomberg Barclays Bond U.S. Aggregate indexes, and assumed annual rebalancing.