It seems every day there is something new, or something changed, regarding tariffs which has fueled tremendous volatility in the overall investment markets. In all this chaos, it is tempting for investors to want to get out of the markets and go to cash.
JP Morgan, one of the Portfolio Strategists we utilize for client accounts, wrote the following in their Weekly Market Recap this past Monday about the reason to stay disciplined in investing…
Last week’s erratic market moves were disorienting. On Tuesday, the S&P 500 closed out its worst four-day stretch since the pandemic, falling over 12% after the administration announced tariffs that exceeded market expectations. Shortly after, news that these tariffs would be suspended for most countries fueled a 9.5% market rally, the largest one day gain since 2008. Volatility wasn’t confined to just equities. 10-year yields fell .19% due to increased growth fears after the tariff announcement, only to finish last week .47%
higher.
Investors may feel compelled to wait out market volatility in cash. However, this tends to be a losing strategy. This week’s chart analyzes returns for a diversified 60/40 stock bond portfolio over different rolling periods since 1995, covering the Dot-Com Bubble, the Great Financial Crisis, the COVID-19 Pandemic and other periods of heightened volatility. History shows that, despite these periods of stress, the diversified portfolio dependably outperforms cash, with the likelihood of outperformance rising with the investment horizon. The 60/40 has beaten cash in 64% of all rolling 1-month periods, 91% of all 10-year periods and 100% of all periods of 13 years or longer. It is equally as important to recognize that markets have always recovered from large downturns. In fact, the diversified portfolio has never finished
a rolling period of 10 years or longer in the red.
When uncertainty is driving markets, investors must remember the basics. Diversification is critical, as bonds help diversify equity exposure against growth shocks. Investors should also get invested and stay invested. While the S&P 500 being down around13% from its February peaks feels painful, long-term portfolios will recover with time. Moreover, investors who invest actively can use sell-offs to gain exposure to quality companies at attractive valuations and lock in attractive yields and protection for portfolios.
