August provided a great “back to school” lesson for long-term investors. Risk and return are related (the 3 R’s); stocks have greater returns but higher risk.
Investors may have forgotten this because the global stock market, as measured by the MSCI ACWI IMI, has enjoyed positive gains for five of the last six calendar years (down 7.89% in 2011) since the global financial crises in 2008. While the MSCI ACWI IMI was down 6.7% in August, it has a more modest loss of 3.23% year-to-date August 31, 2015. No one likes to lose money, but a 3.23% loss should not be as painful as the media thinks.
Five years or longer should be the best time period to measure your investments, and the five-year historical return ending August 31, 2015, on the MSCI ACWI IMI was 9.83%. Remember that!
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Here are a few other “Fun Facts to Know and Tell” right now:
China has captured front-page news about a slowing economy, but its economy has averaged 8% to 10% growth since 1980 (as high as 15%) and has “slowed” to 7% with forecasts that it may slow to 6%. Compare that with the U.S. plugging along at 2%+ (just recently bumped up to the 3%+ range), and it puts the world in perspective.
U.S. exports to China total less than 1% of U.S. gross domestic product (or GDP—the measure of economic output).
The Dow Jones Industrial Average fell more than 10% in five days in August, which is a dramatic but rare decline. Here are the number of trading days it took to recover from previous 10%+ losses in five-day periods:
|1987 Black Monday||419 trading days (about 14 months)|
|1998 Russia default||48 trading days|
|9/11 attack||40 trading days|
|2008 financial crises||304 trading days (about 10 months)|
|2011 U.S. govt. downgrade||62 trading days|
Finally: Gains and losses are only real when you sell; otherwise they are just paper.
As always, please contact us with any questions or news or comments.