More From Ellevest

What Yesterday Means for Your Future

Oh, what a night.

Many of us are wondering what the US election results mean for our futures, and for our investments. Last night, the stock market was at one point slated to open down 750 points, and this morning it opened up. (!) So, if it wasn’t already clear that no one can accurately predict the markets and market reaction, here’s a case in point.

But that may not take away any uneasy feelings.

So let’s put this in some context: over the past 90 years, equity markets have returned 10% on average. But, make no mistake, that 10% was never a straight line: 25 of those years posted a loss. And, even within the years themselves, there has been volatility; over the past 29 years, the stock market has been down 4 ½ months on average annually.

We don’t just set your investment portfolio and ‘forget it’

So the trendline, while it has historically been upward-facing, has not been a smooth one.

How about the tougher of those years? How long has it taken to recover from a tough market? Well, that depends, in part, on how you react.

Below is a chart of the stock market decline of 2007 and 2008. Pretty horrific markets, you’ll recall. If you started with $100K invested January of 2007 and did not sell, you ended up with $172K at the end of 2014. So you were up over that period of time. If you exited the market at the bottom (in January of 2009), you had $55K at the end of 2014. So selling — which certainly felt like a relief at the time — was a losing strategy.

What Yesterday Means for Your Future

Another way of looking at this: if you continued to invest through the downturn of 2007 and 2008, your recovery was even faster. Our analysis shows that if you invested $1K in the S&P 500 in the beginning of 2008 and another $1K in the beginning of 2009, you were back in positive territory at the end of 2009.

(That’s why we’re so pleased to see that two-thirds of Ellevest clients have set up recurring deposits; it’s a smart way to invest.)

Things to keep in mind if you’re invested with Ellevest:

  • Your investment portfolios at Ellevest are not solely invested in stocks. This reduces your risk in comparison to the equity-only results discussed above. (A 50/50 equity / bond portfolio over the 90-year period referenced above returned 8.3% on average, with losses posted in 17 years.)

    Our investment portfolios range from all-cash for your Emergency Fund to just 36% equity for shorter-term goals like a Home goal with a six-year time horizon. Longer-term goals, like retirement, can be up to 97% equities if you are younger; that’s because that increased risk can give you the opportunity for increased returns over your investment horizon, with time to recover in the event of a market dislocation.

  • We don’t just set your investment portfolio and “forget it,” a real drawback in passive investing. Instead we employ something we call a “glidepath,” purposely designed for unknowns like this. With the glidepath, we reduce your investing risk as you get closer to achieving your goals, to reduce the chances of your being knocked off track.

  • We build more down markets into our forecasts than a normal statistical distribution would imply. We include them at the frequency that we’ve experienced historically, to provide you with more realistic forecasts than some others do.

  • We target getting you to your financial goals — or better — in 70% of markets. No, that’s not 100%; in that case, you would be invested so conservatively that you would not give yourself the opportunity to earn a return. Our 70% probability is higher than the 50% probability we’ve seen at other investing firms. As a result, we build in some “cushion” between what we would expect to happen “on average” and what we are working to deliver to you.

We can’t promise you that there won’t be curveballs. We’ve just had a big one. We can’t promise you a smooth ride. But we can tell you that, historically, being invested can be a winning strategy…not every month, not even every year…but over time.

Disclosures

Information was obtained from third party sources, which we believe to be reliable but not guaranteed for accuracy or completeness.

The information provided should not be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice.

The information provided does not take into account the specific objectives, financial situation or particular needs of any specific person.

Diversification does not ensure a profit or protect against a loss in a declining market. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.

Investing entails risk including the possible loss of principal and there is no assurance that the investment will provide positive performance over any period of time.

Other Articles