![]() ![]() Low Volatility + Bull Market = More Risk?Ī common theme of investors who lack discipline is the rotation away from traditional investments, such as stocks, bonds, and real estate, and into assets that do not produce cash flow. However, it’s in these environments when complacency starts to overcome investing discipline. The S&P has delivered +20% returns through August, all while seeing a maximum drawdown of only 4%.Ĭompare that with the average over the last 40 years and investors can consider themselves lucky to have such a smooth ride. Looking at individual years, you can see how calm markets have been during the 2021 calendar year. Morgan Guide to Markets, data as of August 31, 2021. There may not be a more convincing chart that supports buy-and-hold investing. ![]() That in and of itself is a jarring statistic, but more impressive is even with average intra-year declines north of 14%, over 75% of the annual returns in the same reporting period were positive. ![]() Consider the following chart, which indicates the average intra-year drawdown since 1980 has been 14.3%. However, price instability is a characteristic of equity markets that should be expected. Fast-forward to 2021, and such severe volatility seems like a distant memory as markets continue to grind upward. Understand the risks associated with these investments before allocating capital to extremely volatile asset classes.ĬOVID-19 and fears of a global depression wreaked havoc on the financial markets in March 2020, causing stocks to fall +35% in just 33 days. There are a lot of shiny objects these days in the investment world (cryptocurrencies, NFTs, meme stocks, SPACs, just to name a few), and all receive a disproportionate share of the financial headlines.Yet that approach is equally as important during long stretches of positive market performance and muted volatility. Great emphasis is put on having a disciplined investment strategy during turbulent times.However, it’s important to understand that risk doesn’t dissipate in stable market environments and that volatility is normal. 2021 has had very little stock market volatility relative to history.Investment Advisory and Personal Financial Planning.Service Organization Control (SOC) Services.Forensic Accounting and Litigation Support. ![]()
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