Does Staying the Course Pay Off for your Investment Strategy?

Almost every year, it seems there is some reason to be concerned with markets.  When market volatility strikes, we often get questions from investors as to whether or not they should sell their portfolio.  Russell Investments does a great job illustrating portfolio performance during the market’s many ups and downs in the chart below.  They look at a hypothetical portfolio of 60% stocks and 40% bonds faced with three alternative investment paths as of Sept. 30, 2008 (two weeks after the collapse of Lehman Brothers).

The starting point for the $100,000 hypothetical portfolio is Oct. 9, 2007, the market peak before the great recession. Over the next year, you would have watched the S&P 500 drop over 20%.  The three choices as of Sept. 30, 2008 are:

Stay invested, and make no changes (orange line).Move to 100% cash, and remain in cash (light blue line).Move to 100% treasuries, and remain in treasuries (grey line).

The chart shows the clear winner – stay invested and make no changes. Even though you had to stomach even more downside initially, as well as a menu of other market-altering headlines in the following years, when sticking with a 60/40 diversified portfolio, investors recovered a greater percentage of their lost value— and at a faster rate—than going to cash or treasuries.

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