Keeping a Long Term Perspective

Michael Sebastian, Chief Investment Officer

Many investors are looking at major market performance so far in 2022 with some unease. The pandemic, supply chain issues, a tight labor market, spiking inflation, anticipation of interest rate hikes, and now the situation in Ukraine have driven market volatility, prompting concerns about what comes next.

While short-term market movements can be challenging to predict, historical evidence points to two things for long-term investors to keep in mind:​

• Stocks (the driver of growth in portfolios) have produced positive returns, in excess of bonds (the risk-reducer in portfolios), over long enough time horizons. Historically, stocks earned a positive return over five-year periods 90% of the time, and have always recovered from even the worst downturns, such as the 1973-74 crash and the 2008 Global Financial Crisis, in at most six years.

• Downturns and strong market returns have often happened right next to each other. A number of strong years for the market have come despite midyear losses of 10% or more. And staying the course has produced more growth in wealth over time than getting out after market declines, or taking the risk of missing the market’s best days.

www.nextcapital.com/uploads/1/2/7/3/127386987/nca-keeping_a_long_term_perspective-2022.pdfHistory is an imperfect guide to the future, and there are plenty of reasons to think that future market returns will be moderate relative to the experience of recent years. Investors, including those closer to retirement or with otherwise shorter time horizons, have a first and perhaps most important goal of ensuring that their portfolio’s risk and return profile is appropriate for their personal circumstances.

For more information, check out our analysis of the impact of market downturns and long-term market returns, the impact of inflation, and the importance of taking the long view, in Keeping a Long Term Perspective.