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The Bumpy Road to the Market’s Long-Term Average

Since 1926, the US stock market has rewarded investors with an average annual return of about 10%. But it’s important to remember that returns in any given year may be sky-high, extremely poor, or somewhere in between. Annual returns came within two percentage points of the market’s long-term average of 10% in just six of the past 94 years. Yearly returns have ranged as high as up 54% and as low as down 43%. Since 1926, annual returns have been
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History Shows That Stock Gains Can Add Up After Big Declines

Sudden market downturns can be unsettling. But historically, US equity returns following sharp downturns have, on average, been positive. A broad market index tracking data since 1926 in the US shows that stocks have tended to deliver positive returns over one-year, three-year, and five-year periods following steep declines. Cumulative returns show this to striking effect. Five years after market declines of 10%, 20%, and 30%, the compounded returns all top 50%. Viewed in annualized terms across the longest, five-year period,
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April Planning Action Items

Stuff to Do While Quarantined: Clean Up Expenses and Financial Records “When we throw out the physical clutter, we clear our minds. When we throw out the mental clutter, we clear our souls.” –Gail Blanke I get it. We’re all scared. Something is happening that we’ve never experienced before. One thing that might help is to distract yourself while doing something productive. It’s easy to get frozen by news reports and fear. See if this helps get your mind on
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The State of the Economy and Coronavirus

Given the volatility in the financial markets beginning the week of February 20, 2020, it’s helpful to review the state of the U.S. economy entering into this stressful period, what’s happened since, and some of the potential economic impacts. Here is our take on those topics. At the beginning of 2020, the U.S. economy was in very strong shape, with unemployment falling and the labor force participation rate and wages rising. Compared to 2008-09, this is not a financial crisis
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Recent Market Volatility

In recent days, the increase in volatility in the stock market has resulted in renewed anxiety for many investors. While it may be difficult to remain calm during a substantial market decline, it is important to remember that volatility is a normal part of investing. Additionally, for long-term investors, reacting emotionally to volatile markets may be more detrimental to portfolio performance than the drawdown itself. Intra-Year Declines Exhibit 1 shows calendar year returns for the US stock market since 1979, as well
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Value Judgments: Viewing the Premium’s Performance Through History’s Lens

There’s a misconception in the markets: value stocks have lost their vigor. Value stocks have underperformed growth stocks over the past decade. In the US, the annualized compound return has been 12.9% for value stocks, or those trading at a low price relative to their book value. That contrasts with 16.3% annualized compound return for growth stocks, or those with a high relative price.1 LESSONS OF THE PAST Value underperforming growth by 3.4 percentage points a year over a decade is indeed
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A Tale of Two Decades: Lessons for Long‑Term Investors

The first decade of the 21st century, and the second one that’s drawing to a close, have reinforced for investors some timeless market lessons: Returns can vary sharply from one period to another. Holding a broadly diversified portfolio can help smooth out the swings. And focusing on known drivers of higher expected returns can increase the potential for long-term success. Having a sound strategy built on those principles—and sticking to it through good times and bad—can be a rewarding investment
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Markets (and some premiums) Bounce Back

What a difference a few months can make! A few months at the end of 2018 turned U.S. stock returns negative and made international stocks to decline further for the year. Now, just a few months after that recent low, stocks in the U.S. and abroad have staged a significant recovery. U.S. stocks (represented by the S&P 500 Index) declined -13.5% in the fourth quarter of 2018. After the first two months in 2019, they were up 11.5%. This pattern
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Do Surprises Really Move Markets?

French economist Louis Bachelier long ago remarked: “Clearly the price considered most likely by the market is the true current price: if the market judged otherwise, it would not quote this price, but another price higher or lower.” Prices will not change if the expected happens. It is the unexpected that causes prices to move. In an efficient market, any new information the market receives will be random, not in the sense of being good or bad, but in the
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Discipline: A Necessary Condition for Successful Investing Part 3 of 3

(Continued from Discipline: A Necessary Condition for Successful Investing Part 2 of 3) There’s another way to reduce the risk of investment depression. Myopic Loss Aversion and the Pain Ratio Nobel Prize winner in economics Richard Thaler, author of the book Misbehaving, has found that we tend to feel the pain of a loss twice as much as we feel joy from an equal­-sized gain. This tendency leads to the behavior known as “myopic loss aversion,” creating a problem for
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