Chart Talk: April 3rd, 2024


Over the past thirty years ending calendar year 2023, the S&P 500 has returned an average of 8.06% on an annualized basis.  Add in a couple percent in dividends and that average moves up to around ten percent.  However, it is the lack of a statistically normal dispersion around the mean or average that is discomforting for many investors.  This manifests itself in the form of volatility.As is illustrated by the chart below, market performance seldom converges around the mean.  In fact, on a calendar year basis, the S&P 500 has only twice returned within 25% of either side of the average of 8.06%, that is, between 6.05% and 10.07%.  Moreover, only three times or ten percent of the sample size has it sported returns within even 50% of either side of 8.06% or between 4.03% and 12.09%.

It is precisely for these reasons that investors tend to panic when stocks decline.  For example, if annual returns predictably clustered around the average then it would be a more meaningful occurrence when the returns deviated from that number.

Consider the average high temperature in the Capital District during June of 78 degrees.  One could certainly expect that the vast majority of days the high would fall within 25% of that number or between a range of 58.5 and 97.5 degrees and always within 50%, 39.0 and 117.0 degrees.  Now, compare that to the stock market which only 6.67% (2 of 30) did the calendar year returns fall within 25% of the average and only 10% (3 of 30) within 50%.

What is an investor to do when volatility strikes?  First of all, allocate your investable assets in accordance with your objectives.  Second, have faith.  Over the past ninety-plus years, equities have had positive returns 74% of the time.  That percentage increases to 86%, 94% and 100% over five, ten and twenty year timeframes.  Can we be certain that these percentages will hold true in the future?  Of course not.  However, the odds are very much in your favor.

Correlate your investments relatively tightly to the underlying asset class.  Make certain that you diversify your holdings across four to six different industries.  You therefore will be able to weather any unexpected downturn in a particular sector.

Finally, recognize that there will most definitely be periods of volatility.  There will be market downturns.  You will lose money periodically.  It is unavoidable.  You will not be right all of the time.  However, the important factor is to be right over time.  What matters during periods of consolidation is that you exit with the right portfolio.

This presentation is not an offer or solicitation to buy or sell securities. The information contained in this presentation has been compiled from third party sources and is believed to be reliable, but its accuracy is not guaranteed and should not be relied upon in any way, whatsoever. Fagan portfolio characteristics and holdings are subject to change at any time and are based on a representative portfolio. Holdings and portfolio characteristics of individual client portfolios may differ, sometimes significantly, from those shown. This information does not constitute, and should not be construed as, investment advice or recommendations with respect to the securities listed.

Additional information including management fees and expenses is provided on our Form ADV Part 2. The actual return and value of an account fluctuate and, at any time, the account may be worth more or less than the amount invested. Bond Investments are affected by interest rate changes and the credit-worthiness of the issues held in the portfolio. A rise in interest rates will cause a decrease in the value of fixed income positions. Past performance results are not indicative of future results.”

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