The Cost of Superior Returns
We decided to write this WJNotes, not because the declines we’ve seen recently are that unusual considering market history, but because they were quite rapid and seemingly came out of nowhere. Without a doubt, the type of market increases we’ve seen over the past month, year, and 10 years probably set us up for the dramatic move in the opposite direction that we just experienced. There is a good reason stocks provide superior returns to other asset classes over time. Higher long-term returns in asset classes are directly tied to exaggerated short-term price movements. If stocks acted like cash, with very little price movement, their return would look like cash. So, what are we doing to protect portfolios in the event of further market declines?
While these strategies will reduce portfolio losses if market decline continues, your portfolio will still decline. As stated above, this is the “cost” of earning superior returns long term. If you are personally uncomfortable with the volatility in your portfolio, please let us know so we can discuss your current asset allocation. More importantly, have a good weekend. The market is closed!