Investors often make impulsive and costly financial decisions in the midst of a market decline. But, rather than race to the sidelines, it’s important to stay focused on the big picture and the value of adhering to a long-term investment strategy.
History demonstrates that markets have tended to recover quickly following steep declines. And trying to time the market, especially by moving to cash, means that investors run the risk of missing the rebound. As the chart below illustrates, investors who stayed invested following declines of up to 30%, participated in the bounce back and were rewarded with higher returns over the long-term.
FAMA/FRENCH TOTAL US MARKET RESEARCH INDEX 1926—December 2021: Fama/French Total US Market Research Factor and One-Month US Treasury Bills. Source: Ken French website. Investing risks include loss of principal and fluctuating value. There is no guarantee an investment strategy will be successful. Past performance is no guarantee of future results. Short-term performance results should be considered in connection with longer-term performance results. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Market declines or downturns are defined as periods in which the cumulative return from a peak is –10%, –20%, or –30% or lower. Returns are calculated for the 1-, 3-, and 5-year look-ahead periods beginning the day after the respective downturn thresholds of –10%, –20%, or –30% are exceeded. The bar chart shows the average returns for the 1-, 3-, and 5-year periods following the 10%, 20%, and 30% thresholds. For the 10% threshold, there are 28 observations for 1-year lookahead, 27 observations for 3-year look-ahead, and 27 observations for 5-year look-ahead. For the 20% threshold, there are 14 observations for 1-year look-ahead, 13 observations for 3-year look-ahead, and 13 observations for 5-year look-ahead. For the 30% threshold, there are 6 observations for 1-year look-ahead, 3-year look-ahead, and 5-year look-ahead. Peak is a new all-time high prior to a downturn. Data provided by Fama/French. This is for informational purposes only and is not an offer or recommendation to buy, hold or sell or a solicitation of an offer to buy or sell any security, sector or other financial instrument, or to participate in any trading strategy. It has been prepared without regard to the individual financial circumstances and objectives of individual investors. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. Please discuss your questions with your M Financial Professional. Opinions contained herein should not be interpreted as a forecast of future events or a guarantee of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either be suitable or profitable for a client’s portfolio. Economic factors, market conditions, and investment strategies will affect the performance of any portfolio and there are no assurances that it will match or outperform any particular benchmark. M Financial Asset Management, Inc. (M Wealth) is a registered investment advisor, and a division of M Financial Group. CONFIDENTIALITY NOTICE: This document is for the sole use of the intended recipient(s) and may contain confidential and privileged information. Any unauthorized use, disclosure, or distribution is prohibited. © Copyright 2022 M Financial Group. All rights reserved. #4790157.1 Expires 06/2024