Risk and reward are usually closely correlated. There’s no such thing as an investment with consistently high returns and no risk. For example, the average annual return of U.S. stocks is 10.4% since 1926*. If that was the only information you had, you would buy stocks and never sell.
Why doesn’t everyone do that? Risk. There is always the potential for loss. During the Covid crash, the Dow was trading at levels not seen since March of 2015. Throughout history, the stock market has had plenty of bear and bull markets…
This chart demonstrates how the U.S. stock market has been growing throughout history with occasional bear markets. If you worry too much about the potential drops, you run the risk of missing multi-year bull markets.
The best thing you can do as an investor is build a diversified portfolio. Ideally, your portfolio can capture enough of the upside while allowing you to sleep at night during the inevitable downside. There is no such thing as a one-size-fits-all portfolio: it depends on age, risk tolerance, and goals.
One of the ways financial advisors help is by managing risk. Making sure individuals have a proper allocation of stocks, bonds, and short-term investments that align with their needs. If you have any questions or would like to review your portfolio, please don’t hesitate to reach out.
Bear Market: is when a market experience prolonged price declines. It occurs when broad market prices fall at least 20% from the most recent high.
Bull Market: A bull market is when a major stock market index rises at least 20% from a recent low. With a bull market, stock prices steadily increase, and investors are optimistic and encouraged about the stock market’s future performance.
S&P 500: Is a stock market index that track the stocks of 500 large-cap U.S. companies. Its performance is one of the most widely used benchmarks for investors.
Dow Jones: is one way of measuring the stock market’s overall direction. It includes 30 U.S. blue-chip companies.
Disclaimers and Sources:
*Average Annual Return 10.4% from Investopedia. As of 1/19/2022
Bear vs Bull Market: Link here
Bear Market: Link here
Stock investing includes risks, including fluctuating prices and loss or principal. This information is not intended to provide specific advice or recommendations about any stock nor is it intended to be a recommendation to buy, sell or hold any stock investment. We suggest speaking with your financial professional about your situation prior to investing.
Please consult your financial advisor regarding your specific situation. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual