When investing, you cannot separate risk and reward. In general, when the stock market is rising, the more equity risk you assume, the greater your potential reward. Conversely, in a down market the more equity risk you have taken on, the greater your potential for loss.
Risk is a very real part of our investing lives. We can’t eliminate it, but we can manage it.
An online publication called “the balance” included an article that listed the best and worst rolling S&P 500 Index returns between 1973 and 2016. The best one-year return produced a return of 61% which occurred during the 12 months ending in June 1983.
In the 12-month period ending in February 2009 (You remember that one!), the S&P 500 Index was down a whopping -43%.
Thankfully, we at Master’s are long-term investors. The worst 10-year period ending in February 2009 returned -3% annually. The best 10-year return ending in August 2000 was 20% per year.
The worst 20-year period ending in May 1979 delivered a positive 6.4% annually.
We know that past performance does not guarantee performance in the future, but you could build a compelling argument that time is the great mitigator of equity risk.
