Started From The Bottom, Now We’re Here
As global stocks are down about -25% this year (as of 30 Sep 2022), it is natural that many investors are worried about their portfolios
Source: Data from MSCI World Index, Chart from GYC
However, when it comes the probability of a positive return, the odds are in your favour. Since 1970, there has been 13 instances of negative annual returns. That works out to a 1 in 4 chance of hitting a negative year as compared to a positive year.
If you remove the small down years (-5% or less) the probability of experiencing a negative return drops to 15%. Furthermore, if you hold appropriately diversified investments, there is strong evidence that your odds of making a gain is larger than that of a loss. And those are great odds — better than what you can find at the casino. You just need the fortitude to hold on especially when the news becomes increasingly worrisome.
Interestingly, after a down year, the probability of a positive return in the following year rises to 77%.
We also know that forward returns are greater the larger the drawdown and that your downside is capped whilst the upside is unlimited.
If you are still uncertain and want to increase the odds of experiencing a positive return in any particular year, you can make adjustments to the portfolio construction such as de-risking, tilting it towards proven drivers of higher expected returns or adopting a more aggressive diversification strategy.
Due to the unique market conditions that we are in, we have specially dedicated a team to address such concerns. Click here to schedule a 30-minute pre-discovery sessions where we can have a chat with you to better understand your concerns.