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Conversation of the Week

Despite the recent narrative of volatility, history shows that the median annualized return outweighs the median intra-year price decline. Corrections occur frequently, but keeping a long-term mindset can help investors avoid selling for a loss.

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Speaker Notes

Market corrections happen fairly often and even in the good years, including fairly significant intra-year declines in recent strong-return years like 2010 and 2012.

  • From 1983 to 2017, the S&P 500 Index has experienced at least a 5% intra-year decline (i.e., loss) in every year but two. The median intra-year decline over the past 35 years has actually been –9.3%.
  • But notice, equities have still posted positive returns in 30 of those last 35 years with median annualized total returns over that period of over 15%.

So let’s take a page from Warren Buffet, when asked by a CNBC personality in 2009 how it felt to have “lost” 40% of his lifetime accumulation of capital, he said it felt about the same as it had the previous three times it had happened.

The bottom line is, market corrections do not equal a financial loss… unless you sell.

Source: Bloomberg, 12/31/17. Calendar-year returns are total returns, meaning that they do include the reinvestment of dividends. The index is unmanaged and cannot be purchased directly by investors. Index performance is shown for illustrative purposes only and does not predict or depict the performance of any investment. Past performance does not guarantee future results.

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