The Payoff for Perseverance

October 2, 2018

To be an equity investor requires perseverance.  The lessons of history show us that equity values rise and fall unpredictably around a constantly rising trend line.  Being creatures that require some level of certainty and who can emotionally base our opinions on recent events – we wage a constant battle with what our emotions want us to do and what our logic understands.

One chart that reminds me of the volatility that equity markets can experience – and still provide returns 2 to 3 times that of fixed income investments, is the Total Return and intra year volatility chart. The link below show the yearend total returns of the S&P500 US equity market with the intra year maximum (peak to trough) decline. In looking at the returns for specific years we see in 2003 the year end total return was 29% but that year also saw a maximum peak to trough decline of 14% at one point in the year.  In 2009, an exceptional year, the year end total return was 26% and the maximum peak to trough decline was -27% at one point.

Despite the intra- year volatility, the S&P500 Index had positive year-end total returns 25 out of the last 30 years.